F e a t u r e s

Sylvia LeRoy 4 The Environmental Right to Sue: Should Canada Follow America’sLitigious Lead?Do Canadians really want to encourage special interests to use theprecautionary principle to trump competing social and economic goods?

Petr Chylek 7 A Long-Term Perspective on Climate ChangeWe may want to blame someone for climate “change,” but theclimate was changing well before mankind’s arrival on earth.

Laura Jones 11 Signing Kyoto is Not Sound Environmental PolicyKyoto is an expensive remedy that will not work, designed to cure adisease we may not have.

Elizabeth Brubaker 12 Lessons From WalkertonThere is growing interest in the privatization of water utilities; privatefirms have demonstrated that they can deliver clean, safe water.

Tracy Wates 15 Compensation in the Species at Risk ActEstablished compensation programs enable landowners to tolerate,and even welcome, endangered species to their land.

Paul Coninx 18 Measuring the Real State of the WorldA review of Bjørn Lomborg’s book, The Skeptical Environmentalist.

A r t i c l e s

Nadeem Esmail 3 When Does More Doctors Mean Less Access?The density of doctors in Canada has increased, just not as fast as inother OECD countries.

Hymie Rubenstein 20 Why Fewer Farms Means Greater ProsperityNational economic growth and individual standards of living bothincrease as people move out of primary agrarian production.

Neil Seeman 22 And the Survey Says?Canadians are a tolerant people, but what do they truly think ofstate-funded multiculturalism and language policies?

John R. Graham 23 Dead Capital in Ontario’s HospitalsOur hospitals’ lack of profit is a cost, not a benefit.

Joel Emes 25 April Questions and AnswersA look at the “have” provinces and how equalization payments work.

Sylvia LeRoy &Barry Cooper

27 Commanding Identity? Canadian Cultural Policies Within the NorthAmerican PerimeterMedia content and foreign ownership rules confuse culture and politics.

Neil Mohindra 29 The Superiority of Market Solutions for Capital Market ProblemsMarket participants need no help from securities regulators.

Chris Sarlo 30 We’re More Equal Than EverAre the rich really getting richer, and the poor, poorer?

Walter Williams 32 Giving Back

A p r i l 2 0 0 2 | 1

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FRASER INSTITUTE BOARD OF TRUSTEES

Chairman

R.J. Addington, OBE

Vice Chairmen

T. Patrick BoyleWilliam KorolMark Mitchell

Board Members

Keith AmbachtsheerDavid AsperCharles BarlowSonja BataEdward BelzbergEverett BergTony BoeckhPeter BoydPeter Brown

Alex ChafuenJames ChaplinWendy M. CecilSerge DarkazanliJohn DobsonGreg FleckArthur GrunderJohn HaggRaymond HeungPaul HillStephen HynesPeter KainsHassan KhosrowshahiRobert LeeBrandt LouieWilliam MacknessJim MainFred Mannix

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Secretary-Treasurer

Michael Hopkins

Editor’s notes

Idislike flying intensely. Consequently, I do verylittle of it. And as a result of my inexperience, I

am unable to distinguish one plane sound andfeel from another. To be specific, turbulence feelsto me simply like the precursor to a full-on crash.

On one memorable return flight from Britain, theplane was tossing about severely enough that Iasked the pilot, who was on a reassuring strollaround the main cabin (this was well prior toSept. 11), whether the wings were going to hangon until we landed.

“Madam,” he answered, “Please understand thatI, too, have an interest in the plane’s safe arrival.”Indeed.

Much the same can be said of our environment.Every one of us has a vested interest in its goodhealth, in its survival. The Left, which may regarditself as the conscience of the planet, has nomonopoly on concern about the state of ourplanet. We all want to live.

But the analogy doesn’t end there. I, a rare trav-eler ignorant of the minutiae of flight physics,have no personal knowledge base that can give meaccurate information about whether or not theplane I am traveling on is really in trouble.Whether I like it or not, I must rely on the pilot’sexpertise. A cheerful pat on the back from anequally ignorant fellow traveler is not calming.That traveler knows as little as I do. I am not pre-pared to put my trust in someone who is noexpert in the field.

We would do well to heed the same principlewhen it comes to a discussion of the environ-ment. Most of us are not scientists. We have noway of knowing what the true state of the envi-ronment really is. A protester dressed up in apolar bear (or seal, or tree) costume is not a goodsource of hard facts about the well-being of ourenvironment. Fortunately, there are plenty ofexperts out there who do have the understandingto give us the information we need to come tosome well-reasoned, sensible conclusions aboutthe environment and whether or not we can, andhow we should, help keep it healthy.

This issue of Fraser Forum introduces you tosome of these experts. I think you’ll be pleased tofind that, like the pilot of my plane, their assess-ment of the situation is clear, straightforward,and for the most part, quite reassuring.

—Kristin McCahon

by Nadeem Esmail

Some health policy analysts whodeny that the Canadian system is

in crisis point to the increase in doctorsper capita since the introduction of tax-payer-funded health care as proof. In-deed, the number of doctors in Canadahas risen from 1 doctor for every 950 Ca-nadians in the 1960s to one doctor forevery 550 Canadians in 1999 (Rachlis etal., 2001; Barlow, 2002).

However, the fact that the number ofdoctors per capita in Canada has risendoes not prove that Canada has no doc-tor shortage. There must also be someaccounting of the increased demand formedical services on the part of patients,which is not possible in Canada whereno marketplace for physicians’ servicesexists. What is possible is a comparisonof Canada’s experience with that ofother OECD countries where consum-ers of health are able to determine,through parallel private systems or mar-ket mechanisms in the public system,what the growth in the number of phy-

sicians per capitashould have been.

In 1998, Canada ranked sixteenth out of22 OECD countries in a comparison ofdoctors-to-population (table 1). Thatyear, Canada had a population of 56,203full-time-equivalent doctors (OECD,2001). In order to rank with equallydeveloped countries, Canada wouldhave needed a significantly larger popu-lation of doctors. For example, in orderfor Canada’s 1998 ranking to equal thatof France, which spends as much asCanada does on health care as a percentof GDP, the number of doctors wouldhave had to be higher by approximately35,000. In order to rank first, Canadawould have needed 44,000 more doc-tors—an 83 percent increase.

Although the number of doctors percapita in Canada has increased overtime, it is important to consider thegrowth rates in other countries. In 1970,Canada had 1.2 doctors per 1,000 peo-ple, the fourth- highest ratio among 9OECD countries for which data wasthen available. Canada had a higherdoctor-to-population ratio than Swit-zerland, and as high a ratio as theUnited States. Since 1970, however, 8 ofthese 9 countries have bettered Canada’s

growth in doctors per capita. Only Fin-land did worse. While the density ofdoctors in Canada grew by 50 percentover the period, the average increase inthe density of doctors in the other 8countries was 125 percent.

In the 28 years between 1970 and 1998,Canada’s doctor per capita rank fellfrom fourth of 9 countries to sixteenthout of 22 countries. This is particularlyremarkable given that in 1998 Canadaranked fourth in health spending as apercent of GDP. Only Germany, Switzer-

continued on page 6

A p r i l 2 0 0 2 | 3

When DoesMore DoctorsMean Less Access?

Nadeem Esmail (nadeeme@fraserinstitute.ca) completed his B.A.in Economics at the University of Calgary, and his Masters inEconomics at the University of British Columbia. He is a HealthPolicy Analyst at The Fraser Institute.

Fraser Forum

Table 1: Comparison of

Doctors per 1,000 Population for

Select OECD Countries (1998)

Rank Country 1998

1 Germany (1997) 3.3

2 Belgium 3.1

2 Hungary 3.1

4 Austria 3.0

4 Finland 3.0

4 France 3.0

7 Czech Republic 2.9

8 Portugal 2.8

8 Sweden 2.8

8 Norway 2.8

11 Luxembourg 2.4

12 Switzerland 2.3

13 United States 2.2

14 United Kingdom 2.1

15 Australia 2.0

16 Canada 1.8

17 New Zealand 1.5

18 Netherlands 1.4

19 Mexico 1.3

20 Turkey 1.2

21 Denmark 0.7

21 Ireland 0.7

Source: OECD Health Data 2001.

by Sylvia LeRoy

Celebrity sightings are not entirelyunusual for Banff, where each

summer the annual Banff Television Fes-tival attracts established stars andwould-be producers to collect awardsand pitch their wares. But rather thanpushing the usual Hollywood products,when Robert F. Kennedy Jr. descendedon Banff with an entourage of his Holly-wood friends early this year, they werepromoting a very different American im-port: the use of environmental lawsuitsto save Alberta’s lakes and rivers fromunseen polluters.

The celebrity event, planned around afundraising dinner for the NewYork-based eco-litigation group theWaterkeepers Alliance, set off a war ofwords between Kennedy and Alberta’sEnvironment Minister Lorne Taylorover the province’s environmental pro-tection record. This is not the first timeKennedy has clashed with Canadian

politicians over his activist and litigiousbrand of environmentalism. Invited tospeak to the House of Commons duringEcoSummit 2000, Kennedy provokedthe ire of federal Environment MinisterDavid Anderson by criticizing Ottawafor devolving environmental protectionand enforcement powers to the provinces.

Both incidents draw attention to the dif-ferences between US and Canadianenvironmental protection regimes, andthe role that courts and private interestsplay in setting and enforcing environ-mental policy. In the late 1960s, envi-ronmental activists began advancingtheir cause through the American courtsin much the same way that civil rightsactivists had used the justice system tochange social policies relating to deseg-regation, affirmative action, and abor-tion. Environmental groups such as theNatural Resources Defence Council,and the Sierra Legal Defence Fund (nowEarthjustice LegalDefence Fund) were

formed for just that purpose, and nowclaim credit for writing many of Amer-ica’s major environmental laws. Toensure the vigorous enforcement ofpowerful US legislation such as theClean Air Act, the Clean Water Act, andthe Endangered Species Act, these lawscontain powerful civil suit provisionsthat encourage private citizens andactivist groups to sue alleged polluters.

Canada’s federal system and the rapidlyeroding tradition of Parliamentarysupremacy have heretofore limited theability of the courts to advance an envi-ronmental agenda. Rules of standinghave traditionally limited the right tobring a case to court to those who havesuffered a particular harm to their per-son or their property. Nevertheless,environmentalists, specifically a newly-emerging group of environmental lawyers,have become key players in establishingfederal and provincial environmentaldepartments with strong oversight pow-ers. Since the advent of the Charter ofRights and Freedoms in 1982, access tocourts by special interest groups hasgrown enormously, as has the success ofenvironmental litigants. The environ-mental litigation and activism of Can-ada’s own Sierra Legal Defence Fundalong with a network of other lobbyingand litigation groups have constitutedthe vanguard for environmental lawreform. The past decade has seen courtchallenges used to extend the applica-tion of federal environmental laws deepinto areas of provincial jurisdiction.1

Today, Canada’s most powerful federalenvironmental protection laws, theCanadian Environmental Protection Act(CEPA) and the Fisheries Act, bothinclude citizen suit provisions. Environ-mentalists are currently lobbying tohave a citizen suit provision reinsertedin the proposed Species at Risk Act(SARA) as well.2 Citizen suit provisionsgive anyone the right to sue accused

4 |

The EnvironmentalRight to Sue:Should Canada FollowAmerica’s Litigious Lead?

Sylvia LeRoy (sylvial@fraserinstitute.ca) is a research analyst inThe Fraser Institute’s Calgary office. She is co-author, with BarryCooper, of the Public Policy Source Off Limits: How RadicalEnvironmentalists are Shutting Down Canada’s National Parks.

Fraser Forum

environmental lawbreakers, whether thecitizen-plaintiff has suffered a particu-larized injury or not. In effect, theseprovisions empower private citizens todefend the Earth in court. In addition toboth deterring environmental harmsand providing compensation for them,an environmental right to sue isendorsed as a way to improve publicparticipation in environmental deci-sion-making while supplementinggovernment enforcements efforts.

But are more lawsuits really the answer?Certainly, the common law tort systemhas always played an important role inenvironmental protection efforts. AsBerkeley law professor Peter S. Menellexplains, “By identifying the cause ofenvironmental harms, assessing thebehavior of actors responsible for suchharms, and quantifying the harm toplaintiffs, individual assignment of lia-bility through courts, in theory, pro-vides compensation to victims whileinternalizing the social costs of harm-producing activities” (Menell, 1991, p. 93).

American experience with citizen suitprovisions suggests that what works intheory does not always work in practice.For instance, rather than promotingparticipatory grassroots democracy,empirical evidence suggests that anenvironmental right to sue may advancethe organizational goals of powerful butnarrow special interest groups. A reviewof citizen suit activity under the USClean Water Act in the 1980s found thatfive national environmental groups(including Kennedy’s own NaturalResources Defense Council)3 wereresponsible for the majority of suits filedbetween May 1984 and September 1988(see Greve). A later study found that$9.3 million out of the total $11.3 mil-lion received as penalties between 1988and 1993 were collected by four promi-nent groups that had a practice of care-fully screening potential cases (see Lehner).

Of course, everyone would like to assumethat the environmental interest groupsare taking polluters to court purely foraltruistic reasons, but the reality is thatorganizational incentives exist to bringsuits for the purpose of attracting orretaining members (Boyer and Meidinger,1985). While plaintiffs may only receivecosts, they stand to profit by obtainingattorneys’ fees or settlements to financesubsequent litigation or other environ-mental initiatives. As Dr. MichaelGreve, adjunct scholar at the Competi-tive Enterprise Institute, has noted,“Substantial portions of [citizen suit]settlements constitute direct transferpayments to environmental groups”(Greve, 1990, p. 339). In Canada, theindividual or interest group initiatingthe case can be awarded half of the fine.

Frivolous lawsuits are more likely thanever in the US, where the SupremeCourt recently reversed an almostdecade-long trend that had limited theability of environmental interest groupsto push claims through the courts. Thecourt ruled that the perception of envi-ronmental harm—whether or not thatfear is justified—provides adequategrounds to achieve standing to prosecutean alleged polluter.4 According to thisreasoning, the enforcement of existingregulations does not necessarily result inenvironmental improvement. Conse-quently, it pays environmental bountyhunters to equate emissions with pollu-tion, promoting phantom fears aboutthe real state of the environment.

While budgetary constraints andaccountability to the electorate encour-age governments to prioritize enforce-ment efforts, private litigants havestrong incentives to consider the ease oflegal victory (and depth of defendant’spockets) when considering which viola-tors to prosecute (Adler, 2001, p. 39).Because private litigants don’t facepolitical repercussions from unwise

enforcement priorities, they are free topursue enforcement for enforcement’ssake, regardless of the severity of legalinfraction, far less the real threat to theenvironment.

For instance, a report released inDecember 2001 by two BC environmen-tal law groups criticizes the province’smine inspectors for focusing on workers’health and safety rather than making theprosecution of every environmentalinfraction the top priority (Campbell,Sumi, and Young, 2001). In contrast tojurisdictions that encourage private

prosecutions (such as Ontario), the BCgovernment has adopted a policy of tak-ing over, and frequently staying thecases of private litigants. Consideringthe fact that BC’s mining policy hasbeen ranked the lowest on The FraserInstitute’s Annual Survey of MiningCompanies for the past five years (Jonesand Fredricksen, 2001), any plans toexpand opportunities for private prose-cutions would be ill-considered.

The courts should continue to play animportant role in protecting the envi-ronment by enforcing property rightsthat assign responsibility under tradi-tional common and civil law rules. Butas BC Attorney General Geoffrey Plantexplained at a conference last Novem-ber, while “it used to be said of the com-

A p r i l 2 0 0 2 | 5

L e g a l I s s u e s

... organizationalincentives exist tobring suits for the

purpose ofattracting ...

members.

mon law of civil obligation that its rulesand their application encouraged pre-dictability and stability … The legallandscape is in a constant state of flux,as the boundaries of legal principlesexpand into uncharted waters. Theseshifts have tended to favour increasedliability for defendants, particularly sol-vent ones” (Plant, 2001). Whether it isthe government or private industry thatis directly being sued, it is ultimately thepublic—either as consumers or taxpay-ers—who pay the price.

Do Canadians really want to followAmerica’s lead by encouraging specialinterest groups to act as “private attor-neys general” using the precautionaryprinciple to trump competing social andeconomic goods? Liberalized notions oflegal liability, relaxed rules of standing,

and citizen suit provisions in new andexisting environmental laws suggest thatwe may already be following Americantrends. This is coming at a time ofgrowing recognition about the limitedcapacity of courts to decide complexissues of social policy in an already over-burdened court system. Before encour-aging special interest groups to tie upthe courts with more lawsuits, furtherresearch is needed to quantify the rela-tive costs and benefits of an environ-mental right to sue.

Notes1See, for example, Friends of the Oldman

River Society v. Canada (Minister of Trans-port) [1992] 1 S.C.R. 3.2Such a provision was included in Bill C-33,

SARA’s predecessor that died on the order

paper when the 2000 general election wascalled.

3The other four groups are the Sierra Legal

Defense Fund, Atlantic States Legal Founda-tion, Public Interest Research Group, andFriends of the Earth.

4Friends of the Earth v. Laidlaw, 528 U.S. 167

(2000).

References

Adler, Jonathan H. (2001). “Stand orDeliver: Citizen Suits, Standing, andEnvironmental Protection.” Duke Envi-ronmental Law and Policy Forum. Vol 12,no 1 (Fall): 39-83.

Boyer, Barry and Errol Meidinger (1985).“Privatizing Regulatory Enforcement.”Buffalo Law Review. Vol. 34, no. 3 (Fall):833-964.

Campbell, Karen, Lisa Sumi, and Alan Young(2001). Undermining the Law: Assessingthe Crisis in Compliance With Environ-mental Mining Laws in BC. West CoastEnvironmental Law and EnvironmentalMining Council of BC (December). Avail-able at www.wcel.org/wcelpub/2001/13569.pdf.

Greve, Michael S. (1990). “The PrivateEnforcement of Environmental Law.”Tulane Law Review. Vol. 65, no. 2(December): 339-94.

Jones, Laura and Liv Fredricksen (2001).Fraser Institute Annual Survey of MiningCompanies 2001/2002. Vancouver, BC:The Fraser Institute.

Lehner, Peter H. (1995). “The Efficiency ofCitizen Suits.” Albany Law EnvironmentalOutlook. Vol. 2, no. 1 (Fall): 4-12.

Menell, Peter S. (1991). “The Limitations ofLegal Institutions for Addressing Envi-ronmental Risks.” Journal of Environmen-tal Perspectives vol. 5, no. 3, pp. 93-113.

Plant, Geoffrey P. “Civil Justice in the 21st

Century—The Way Forward.” Address tothe Continuing Legal Education Societyof British Columbia. Nov. 30, 2001.Available at http://www.cle.bc.ca/cle/stay+current/collection/2001/11/01-misc-plant.htm. �

6 |

When Does More Doctors Mean Less Access?

continued from page 3

land, and the United States spent moreon health care, while France spent a per-centage equal to Canada’s. Compara-tively, the health care sector should haveenough resources to provide for manymore doctors than we now have. Thelong and growing waiting lists suggestthat we could certainly employ morephysicians to advantage.

The fact that there are more doctors percapita in Canada now than at any timein the past is not a decisive argumentagainst claims of doctor shortages. EveryOECD country has more doctors nowthan in 1970. What is clear is that Can-ada has a relative shortage of doctorscompared to other, equally developedOECD countries and, in fact, comparedto many less developed countries. It isalso clear that the coverage of the popu-lation is, comparatively, much lower

than it was 30 years ago when the cur-rent medicare system was launched.

Note1Doctors are defined as general practitioners

plus specialists, not including interns andmedical residents.

References

Barlow, Maude (2002). Profit is not the Cure.Council of Canadians: Ottawa.

Organisation for Economic Cooperationand Development (2001). OECD HealthData 2001: A Comparative Analysis of 29Countries. CD-ROM. Paris: CREDES.

Rachlis, Michael, Robert G. Evans, PatrickLewis, and Morris L. Barer (2001). Revi-talizing Medicare: Shared Problems, PublicSolutions. Tommy Douglas ResearchInstitute: Vancouver. �

L e g a l I s s u e s

by Petr Chylek

During the last few decades ourability to observe the climate

and to detect climate and temperaturechanges has increased considerably as aresult of improved ground-based mea-surements as well as by development ofglobal satellite-based observations. Mostof us seem to be surprised that the cli-mate is changing. A changing climatechallenges our feeling of stability and se-curity. We are trying to find the reasonfor climate “change” and whom weshould blame for it. However, the cli-mate was changing even before man-kind produced the first mole of carbondioxide; it was changing dramaticallyeven before mankind arrived on earth.

Ice ages and warminterglacial periods

The ice core records from Greenlandand Antarctica provide one of themost reliable sources of informationabout the past climate. The longestand one of the most accurate recordsof past temperature change is avail-able from the Vostok ice core (Petit et

al., 1999) in Antarctica. The fact thatGreenland and Antarctic ice coreresults agree with each other, and withtemperature records derived fromocean floor sediments and other cli-mate indicators, suggests that the tem-perature changes observed in ice corerecords were global. Thus, the temper-ature record of the Vostok ice corecan be considered to simulate globalclimate evolution.

Fig. 1 shows the atmospheric tempera-ture changes (numerical data fromPetit et al., 1999) over the Vostok sitefor the last 420,000 years. The changesare displayed with respect to the cur-rent average temperature that deter-mines a zero point on the verticalscale. There are several distinct peaksprotruding considerably above theaverage. These peaks represent warminterglacial periods. The current warmperiod, called Holocene, started about11,000 years ago. There were otherwarm periods around 130,000,240,000, 320,000 and 420,000 yearsago. These warm periods, similar to

A p r i l 2 0 0 2 | 7

A Long-TermPerspective onClimate Change

The temperature record (about the last 420,000 years) from the Vostok ice core in Antarctica (nu-merical data from Petit et al., 1999) shows the climate oscillations between relatively short warmperiods and longer lasting ice ages.

Figure 1: Ice Ages and Warm Periods

Petr Chylek (Petr.Chylek@Dal.Ca) is aProfessor of Physics and AtmosphericScience at Dalhousie University inHalifax. For ten years he held theAES/NSERC Research Industrial Chair inClimate Research and Marine Meteorol-ogy. He has established and developed aworld-class research oriented graduatelevel atmospheric science program atDalhousie University (www.atm.dal.ca).The Department of Physics at DalhousieUniversity has been recently renamed toDepartment of Physics and AtmosphericScience to reflect the program’s nationaland international recognition.

Fraser Forum

one we are living in right now, occupyonly about 16 percent of the past420,000 years. For most of the time,the Earth’s climate was considerablycolder and less hospitable to humansthan it is today. In this sense we areliving in an exceptional period of theEarth’s climate history, in a pleasantwarm period that has made the devel-opment of civilization and technologypossible.

The Vostok ice core record (Petit et al.,1999) also includes a record of atmo-spheric carbon dioxide (CO2) concen-trations. A challenging detail of theVostok ice core record is that often thetemperature changes first, followed laterby changes in carbon dioxide (Fisher etal., 1999). The changes in CO2 lagbehind changes in temperature. Conse-quently, changing carbon dioxide atmo-spheric concentration was not the causeof the past climate variation docu-mented in the Vostok ice core.

Current warm climate

Our current, warm, interglacial period(the Holocene) started about 11,000years ago. Figure 2 shows the Vostoktemperature record (Petit et el., 1999)for the last 10,000 years. Although thecurrent temperature at the Vostok site isabout 0.4 degrees C above the Holoceneaverage, such a temperature is notuncommon. In the past, there wereperiods with even higher temperatures.The most distinct of these is a period ofabout 500 years between 4,000 and5,000 years ago when temperatures wereup to 1.5 degrees C above the Holoceneaverage at the Vostok site. It is worthnoting that there is no evidence that theWest Antarctic ice cap collapsed ormelted during this 500-year warm cli-mate period. Although the current massbalance of the Antarctic ice sheet is sub-ject to definite uncertainty, most of thereports indicate that the Antarctic icesheet is currently growing. Similar warmperiods are also recorded in ice core

samples from Greenland, suggestingthat the warming was not just local. Pastwarmer and drier periods also led toincreased levels of forest fires, which arerecorded in soot deposits in ice cores(Chylek et al., 1992, 1995).

Instrumentaltemperature records

For the last 120 years, we have instru-mental temperature records from mete-orological stations distributed overseveral continents and a few observa-tions from ships. Several researchgroups have tried to reconstruct the“global average” earth temperaturefrom these measurements. Since thedensity of the stations is not uniformover land, and since there are very fewobservations over the ocean, the dataneed to be adjusted for this lack ofhomogeneity. The resulting “globalaverage” depends on the way in which itis done. In addition, the environmentat many stations has been changed overthe decades from the growth of cities,the expansion of airports, and otherenvironmental changes. The measuredtemperatures must be corrected to sepa-rate the effect of local environmentalchanges from the global climate change.Consequently, there are some differ-ences between the results of individualresearch groups. As a typical example ofthe observed changes in global surfaceair temperature, figure 3 shows approxi-mately the last 120 years of global aver-age temperature as produced by theNASA Goddard Institute for SpaceStudies climate research group (Hansenet al., 1999). Individual points representannual global average temperature; thethick solid line is the five-year runningaverage. The five-year averagingsmoothes out annual variations and thelong-term trend becomes more obvious.

8 |

Figure 2: Last 10,000 Years

The Vostok ice core record of the temperature changes during the current warm period calledHolocene (numerical data from Petit et al., 1999). About 4,500 years ago, the climate in Antarcticawas considerably warmer than it is today for a period of over 500 years. In spite of that there is noevidence of any climate catastrophe (melting of ice sheets) taking place in this hot episode of climateevolution.

C o v e r S t o r y

The observed warming is at the rate of0.5 degree C per 100 years. There aretwo intervals during which considerablewarming took place. The first warmingperiod is from about 1890 till 1940. Thesecond warming period starts around1970 and lasts to the present. Inbetween these two periods, a slight cool-ing occurred between 1940 and 1970.

The warming between 1890 and 1940cannot be blamed on carbon dioxidesince its production, especially at thebeginning of this period, was quitesmall. Most scientists agree that thechanges in solar radiation are the mostprobable cause. Many blame the secondwarming period, from 1970 to the pres-ent on our production of carbon dioxide.

Satellite observations

As discussed in the previous section, thesurface temperature record can be sub-ject to various interpretations and criti-

cism. The highest density of meteoro-logical stations is in North America and

Europe. Many fewer stations are spreadover South America, Africa, and Asia.Over the oceans, which form abouttwo-thirds of the earth’s surface, thecoverage is extremely poor. In addition,it is not always easy to separate the effectof changing local environments fromglobal climate change in temperaturemeasurements.

Recently, it has become apparent thatsatellite-based technology is the onlyfeasible way to monitor global environ-mental and climate change. The micro-wave radiation emitted by theatmosphere is a sensitive function of theatmospheric temperature. This sensitiv-ity can be used to measure the tempera-ture of the atmosphere (Christy et al.,2000). The satellite-based measurementof the temperature of the lower atmo-sphere (troposphere) has been availablesince late 1970s. Figure 4 compares thesurface temperature records (NASAGISS site data) with the atmospherictemperatures deduced from the satellite

A p r i l 2 0 0 2 | 9

Figure 3: Global Temperature Changes

Figure 4: Surface and Tropospheric Temperature Changes

Surface air temperature changes (annual data and 5 years running average) for the last about 120years (numerical data from NASA GISS web site). The temperature rise started around the year1890, when anthropogenic carbon dioxide production was negligible compared to present.

The annual global surface air temperature (data from NASA GISS web site) and tropospheric tem-perature derived from microwave satellite data (provided by John Christy). The average rate oftemperature rise of 0.12 deg. C per decade for the surface air temperature is contrasted by almostno temperature change (a rate increase of 0.03 deg C per decade is within uncertainty of measure-ments and is not statistically significant) indicated by satellite observations.

Fraser Forum

microwave data (up-to-date data kindlyprovided by John Christy).

Although both the curves have a similarcharacter, there is an essential differencebetween them. The overall trend of thesurface temperature measurementsshows the temperature increasing at therate of 0.12 degree C per decade. On theother hand, the satellite measurementsof atmospheric temperature indicate anincrease at the rate of only 0.03 degree Cper decade. Thus, the surface seems tobe warming faster than the atmosphere.

How can we reconcile these differentrates of warming between the surfaceand the atmosphere? We can, of course,argue, as some do, that either the sur-face or the satellite measurements, orboth, are wrong. On the other hand, alot of highly competent people put a lotof effort into both sets of data, and sowe should not dismiss either set lightly.Is it possible that both sets are correct,and that the surface is really warmingfaster than the atmosphere? The IPCC(Intergovernmental Panel for ClimateChange) 2000 report acknowledges thediscrepancy between the surface andatmospheric temperature data that can-not be currently reconciled.

Current climate change

The General Circulation Models(GCMs) are complicated models of theatmosphere and oceans that are used forclimate studies. The increasing concen-tration of carbon dioxide is generallyconsidered to be the driving mechanismfor current climate change. The GCMssuggest that the increasing atmosphericconcentration of carbon dioxide orother greenhouse gases will heat theatmosphere at the same rate as the sur-face. On the other hand, if the warmingis caused by factors other than green-

house gases (for example the change oflow-level cloudiness), then it is quitepossible that the surface could warmfaster than the atmosphere.

If we admit both sets of data as correct,then carbon dioxide should not be con-sidered as a dominant force behind thecurrent warming. Natural climate vari-ability, changes in land use and the vari-ability of solar radiation are a fewfactors that can affect the climate.

The sun can affect the climate by thevariation of total solar radiation output,by changes in the UV radiation thataffect the ozone layer, and by modifyingthe cloudiness through the variation offlux of cosmic rays reaching the earth’satmosphere. The current solar cycle isunusual in that it reached the solar max-imum in the year 2000, but a second,unexpected peak in solar activityoccurred again in late 2001 and early2002. This double-peaked cycle keepsthe sun close to its maximum activityfor a longer time than usual, so shouldeffect the earth’s weather and climate.During enhanced solar activity, there isincreased heating, especially of the trop-ical regions. This is just one example ofhow factors other than carbon dioxidedo contribute to the current climatevariability.

We are living in a rare period when theearth’s temperature is pleasantly warm.Only 16 percent of the last 420,000 yearshad a climate as pleasant as it is today.Instrumental measurements suggestthat the global average temperatureincreased by about 0.5 degree C overapproximately the last 120 years. Someof this increase was very probablycaused by increased atmospheric con-centration of CO2. However, how muchof the increase can be ascribed to CO2,to changes in solar activity, or to thenatural variability of climate is uncer-

tain. The fact that the temperaturestarted to go up around 1890, whenman-made production of CO2 was neg-ligible, indicates clearly that forces otherthan increasing CO2 were responsiblefor the heating that occurred during thefirst half of the twentieth century. Thefact that currently the surface air iswarming faster than the atmospheresuggests that even in the post-1970warming period, forces other thangreenhouse gases are responsible for atleast a considerable fraction of theobserved warming. Thus, it is highlyprobable that global average tempera-ture will go up and down in the comingyears, decades, and centuries regardlessof what we do.

References

Christy, John R., R. W. Spencer and W. D.Braswell (2000). “MSU TroposphericTemperatures: Dataset Construction andRadiosonde Comparisons.” J. Atm. Ocen.Technol., 17: 1153-1170.

Chylek, Petr,.B. Johnson, and H. Wu (1992).“Black Carbon Concentration in ByrdStation Ice Core: From 13,000 to 700Years Before Present.” Ann. Geophys. 10:625-629.

Chylek, Petr, B. Johnson, P. Damiano, K.Taylor and P. Clement (1995). “BiomassBurning and Black Carbon in the GISP2Ice Core.” Geophys. Res. Lett. 22: 89-92.

Hansen, J., R. Ruedy, J. Glascoe, and M. Sato(1999). “GISS Analysis of Surface Tem-perature change.” J. Geophys. Res. 104:30997-31022.

Fischer, H., M. Wahlen, J. Smith, D.Mastroianni and B. Deck (1999). “IceCore Records of Atmospheric CO2Around the Last Three Glacial Termina-tions.” Science 283: 1712-1714.

Petit, J. R., et al.(1999).” Climate and Atmo-spheric History of the Past 420,000 YearsFrom the Vostok Ice Core, Antarctica.”Nature 399: 429-436. �

10 |

C o v e r S t o r y

by Laura Jones

As Canadian politicians jockey toarticulate their positions on

whether Canada should ratify the inter-national agreement to reduce green-house gas emissions negotiated inKyoto, Japan, in 1997, a critical consider-ation is being overlooked—what is bestfor the environment.

Many politicians, media commentators,and spectators believe that what is bestfor the environment is obvious: signKyoto. The only thing left to debate iswhether we can afford it. Kyoto’s pricetag is a legitimate concern. If Canadaratifies the treaty, we are committing toreduce greenhouse gas emissions to 6percent below 1990 levels sometimebetween 2008 and 2012. Since emissionsare currently 15 percent above 1990 lev-els and expected to be even higher by2008, we are really talking about reduc-ing emissions by roughly 30 percent.

Where do the emissions come from?They are largely theresult of burning fossilfuels, an essential

ingredient to much of what Canadiansproduce and consume. How do wereduce emissions by over 30 percent?No one, including Environment Minis-ter Anderson and Prime MinisterChretien, is quite sure. But to achievesuch a major reduction will almost cer-tainly involve making fossil fuels moreexpensive, likely a lot more expensive.What will this mean for you? Eitherheavier taxation on fossil fuel con-sumption, or detailed rationingschemes, or a combination of the two.Higher taxation and rationing willmean higher prices for almost anyCanadian-made good or service youcan imagine: from the bread at yourgrocery store to the gasoline that pow-ers your car. Meeting the Kyoto targetswill reduce our standard of living.

Since the federal government does notyet have a concrete plan for how Canadawill meet its Kyoto target, perhaps it canbe forgiven for not explaining to Canadi-ans what Kyoto will mean for our pock-etbooks. But given this state of affairs,how can it possibly be forgiven for say-ing it may sign Kyoto as early as June?

Unlike our Prime Minister, PresidentBush has no intention of signing. Heclaims it will damage the US economyand throw 4.9 million people out ofwork. This makes our federal govern-ment’s position look even more ridicu-lous, since making energy moreexpensive in Canada will put us at acompetitive disadvantage with our big-gest trading partner. What does thiscompetitive disadvantage mean? Cana-dian producers will have lower incomes,and Canadians will be dealing withhigher levels of unemployment.

What do the economic costs of Kyotohave to do with protecting the environ-ment? Here environmentalists and thosepoliticians intent on signing Kyotocould learn an important lesson fromeconomists: what’s bad for the economyis bad for the environment. This is

because environmental amenity is what

economists call a “normal good.” When

people’s incomes go up, so, too, does

their demand for environmental protec-

tion. The worst pollution problems in

the world, lack of access to safe drinking

water and the use of highly polluting

fuels like cow dung, are problems we in

Canada can hardly imagine. In fact, like

indicators of health, most indicators of

pollution improve as incomes increase.

In simple terms, richer is cleaner and

healthier, poorer is dirtier and sicker.

Signing Kyoto will make us poorer,

leaving us less concerned with other

A p r i l 2 0 0 2 | 11

Signing Kyoto isNot SoundEnvironmental Policy

Laura Jones (lauraj@fraserinstitute.ca) is Director of Environment andRegulatory Studies at The Fraser Institute. She received her M.A. inEconomics from Simon Fraser University.

Fraser Forum

Richer is cleanerand healthier,

poorer is dirtierand sicker.

environmental and non-environmentalpriorities. How much poorer is yet to bedetermined.

One government study put the price tagto Canada alone at around $40 billion inlost economic output by 2010. Whatelse could we do with $40 billion? Sev-eral years ago the Canadian Water andWastewater Association estimated thatwe need to invest $27.5 billion in watertreatment and distribution over the next15 years—not a sexy environmentalproblem but an important one.

Or consider our concerns about healthcare. Canadians currently wait an aver-age of 12 weeks for access to an MRImachine. To bring MRI availability tothe top of OECD countries wouldrequire an additional 327 machinesacross Canada. How many extramachines would the costs of Kyotoallow us to have? 13,000.

A $40 billion sacrifice might be worthmaking if we knew that the proposedremedy was a cure. But nobody believesthat without the US and developingnations such as India and China com-mitted to reducing their emissions thatKyoto will have any effect at all. Peel theonion back one more layer and you willfind that scientists don’t even know howmuch of the observed warming is natu-ral, and how much of it is a result ofhuman emissions. In summary, Kyotois an expensive remedy that will notwork, designed to cure a disease wemay not have.

Why would Canadian policy makerssupport such nonsensical policy? A gen-erous explanation is that they believe itwill do some environmental good. A lessgenerous interpretation suggests theycare more about appearing green than

really being green. �

by Elizabeth Brubaker

Almost two years have passedsince contaminated drink-

ing water killed seven people and made2,300 ill in Walkerton, Ontario. The trag-edy called attention to severe deficien-cies in water systems all across Canada.Consumers have been deluged with re-ports of their utilities’ failures to complywith regulations and to make desper-ately needed capital improvements.

Despite the unprecedented attention,remarkably little progress has beenmade in upgrading our inadequate sys-tems. From the Yukon Territory, wheregiardia and cryptosporidium periodi-cally contaminate Whitehorse’s water,to Ontario, where more than 400adverse water quality incidents werereported in the last year, a steady streamof stories about inadequately treatedwater continues to flow through thedaily news.

A January storm pushed turbidity inVancouver’s Seymour reservoir abovefederal health guidelines for weeks, giv-ing urgency to the standing order thatpeople with weakened immune systemsboil their drinking water. Vancouver’ssubstandard water is by no means anisolated case in BC. In his most recentannual report, the provincial health offi-cer reported inadequate treatment inmore than 300 small communities. “It is

clear,” he concluded, “that more can bedone to... minimize our reliance onindividual households boiling water as ade facto form of water treatment” (BCProvincial Health Officer’s AnnualReport 2000, p. 15).

On the other side of the country, resi-dents in hundreds of communities like-wise face “boil water” advisories. Aquarter of Newfoundland’s systemshave been deemed vulnerable to con-tamination because of inadequate chlo-rination. Dozens of systems arecontaminated with trihalomethanes,and still others with arsenic or otherpoisons. In January, one Newfoundlandersummed up provincial residents’ justifi-able frustration. Complaining to thegovernment that it had kept underwraps for months the high levels ofarsenic in local wells, he said, “We putour trust in government to make sureour water supply is clean. And you’vefailed us” (CBC News Online, Feb. 1,2002).

Our governments’ wide-spread failureto protect our drinking water may beeven more serious than generallythought. Extrapolating from US data onwaterborne disease, University ofAlberta ecologist David Schindler esti-mates that, here in Canada, contami-nated water may cause 90 deaths and90,000 illnesses each year.

If such estimates are correct, the associ-ated costs would be staggering. In ananalysis of the costs of the Walkertontragedy, economist John Livernois iden-tified $64.5 million in hard costs and anadditional $90.8 million in the less tan-gible costs of illnesses suffered and lives

12 |

Lessons From Walkerton

Elizabeth Brubaker, Executive Director ofEnvironment Probe, is the author ofLiquid Assets: The Privatization andRegulation of Water and WastewaterUtilities, which will be published by theUniversity of Toronto Press later this year.

Fraser Forum

lost. Such figures would pale in com-parison to a calculation of cross-Can-ada costs.

Of course, the Walkerton tragedy andsubsequent revelations about drinkingwater quality across the country alsocost millions of Canadians their trust intheir water systems. A national surveyconducted in September found thatone-third of Canadians have little or noconfidence in their drinking water.

Why have our water utilities—and thegovernments that oversee them—let somany of us down? The problem lieslargely in the fact that neither the sys-tems’ owners and operators nor theirregulators have the tools or incentives toensure that our water is safe.

Too often, ill-trained workers struggleto operate inadequate equipment inunderfunded systems. A municipalworker in North Battleford, Saskatche-wan, said of the system that last springmade more than 8,000 people ill,“You’re running a lot of times by theseat of your pants” (Fluney, Testimonyto the North Battleford Water Inquiry,Sept. 20, 2001, p. 144, lines 19-20). Sucha description fits hundreds of systemsacross the country.

Even well run utilities often lack thefunds to make critical improvements,thanks to tight budgets, limited borrow-ing capacity, and politicians’long-standing reluctance to require con-sumers to pay the full costs of the waterthey use. In 1998, the Canadian Waterand Wastewater Association estimatedthat we would need to invest $27.5 bil-lion in water treatment and distributionsystems over the following 15 years. Asimprovements are put off and waterstandards become tougher, our infra-structure deficit can only increase.

Only now are the public and politicians

beginning to appreciate the high costs of

cheap water. BC’s Drinking Water

Review Panel concluded in February

that consumers are paying too little for

water. It proposed rates that reflect the

true costs of the water supply system.

Late last year, the Ontario government

introduced a bill that will require service

providers to calculate the full costs of

extracting, treating, and distributing

water—including the costs of improv-

ing infrastructure—and to report on

how they intend to recover those costs.

The bill stipulates that regulations may

specify permitted sources of revenue. If

regulations require users to pay the full

costs, the province will be well on its

way to a more sustainable water regime.

Equally promising is the growing inter-

est in the privatization of water utili-

ties—which in other countries may

mean the sale or lease of water treat-

ment systems but which in Canada gen-

erally takes the form of the contracting

out of their operation and maintenance.

Privatization has in many other jurisdic-

tions helped solve problems similar to

our own. It has encouraged enormous

investments in infrastructure. It has

brought water rates in line with costs. It

has made available great expertise. It has

boosted innovation. It has promoted

efficiency. And it has improved regula-

tion by separating responsibility for

financing and operating utilities from

responsibility for enforcing health and

environmental standards. Freeing gov-

ernments from the conflicts of interest

that inhere in their multiple roles, pri-

vatization has enabled them to focus on

their regulatory responsibilities. As a

result of all of these factors, privatiza-

tion has improved performance and

brought greater compliance with health

and environmental standards.

While Canadian experience with waterutility privatization remains limited, itshows considerable promise. Canada’slargest private drinking water projectcan be found in Moncton, New Bruns-wick, where a firm operates and main-tains the water filtration plant that itfinanced, designed, and built.

Prior to the plant’s construction,Moncton had struggled with discol-oured, bad tasting, sub-standard waterfor many years. Unable to obtain pro-vincial or federal funding for a watertreatment system, the city turned to theprivate sector for help. In 1998, after acompetitive bidding process that ini-tially saw expressions of interest fromnine consortia, the city signed an agree-ment with Greater Moncton Water, acompany owned by USF Canada andthe Hardman Group. The companyoffered considerable expertise: parentUnited States Filter manages over 260facilities in North America and is a sub-sidiary of the French water giantVivendi, which has operations in over100 countries. Moncton is delighted togain access to the company’s patentedtechnologies, computerized systems,and resulting efficiencies.

Privatization brought immediate finan-cial benefits to Moncton. The arrange-ment relieved the city of having to makeany up-front capital investment. Equallyimportant were the substantial cost sav-ings. Greater Moncton Water built theplant for $23 million—between $8 mil-lion and $10 million less than a publiclydesigned and built plant would havecost. Operating costs will also be lowerthan they would have been at a pub-licly-run plant. All told, the city expectsto save between $14 million and $17million in capital and operating costsover the course of the 20-year lease.

Moncton’s privatization also broughtdramatic health benefits. The contract

A p r i l 2 0 0 2 | 13

E n v i r o n m e n t

requires the operator to meet—or, insome cases, exceed—Canadian drinkingwater guidelines. Ron LeBlanc of thecity’s engineering department hasboasted, “We believe the water that wehave specified will be the best in Can-ada,” adding, “If they don’t meet thespecs, then they ain’t getting paid”(Forster, Moncton Times and Transcript,Oct. 21, 1999).

Mr. LeBlanc’s comment highlights oneof the greatest benefits of water utility

privatization: accountability. In a pub-licly operated system, accountability israre. Even Walkerton’s notorious Koebelbrothers—the operators who falsifiedrecords and drank on the job—havethus far escaped punishment. In con-trast, punishment comes swiftly in theprivate sector. As one water companyexecutive explained, “People who jeop-ardize the company are not tolerated.”Poorly performing firms are likewiseheld accountable, be it by the munici-palities with which they have contracts,

by their shareholders, or by a market-place in which a tarnished reputationmay prevent them from winning otherbusiness. Such mechanisms providepowerful incentives to perform well.

Despite its many benefits, privatizationcontinues to meet strong resistancefrom some quarters, most notably fromlabour unions. Some of the unions’ con-cerns—especially those regarding thestaffing cuts made possible by the pri-vate sector’s more efficient opera-tions—may be addressed by contractprovisions protecting workers’ interests.

Other issues, such as the reluctance totrust something as essential as water to aprofit-driven firm, must be counteredwith a close look at reality. Public insti-tutions brought us the tragedies inWalkerton, North Battleford, and thehundreds of other communities whosewater has been poisoning people. Thoseinstitutions, with their inherent prob-lems of politically constrained funding,insufficient performance incentives, andcompromised oversight, have served uspoorly. In contrast, private firms havedemonstrated that they can deliverclean, safe water. Properly structuredagreements give them the tools andincentives to do so.

References

Bourden, Scott (2002). Quoted in “PeopleNot Told of Arsenic in Nfld. DrinkingWater.” CBC News Online. February 1.

British Columbia Provincial Health Officer(2001). Drinking Water Quality in BritishColumbia: The Public Health Perspective.Provincial Health Officer’s AnnualReport 2000. October.

Fluney, Patrick (2001). Testimony to theNorth Battleford Water Inquiry. Tran-script. September 20.

Forster, James (1999). “Water treatmentbegins,” Moncton Times and Transcript,October 21, 1999. �

14 |

Rewarding Non-Profits forEfficiency & Effectiveness

Cash awards totaling $65,000, togetherwith confidential performance eval-uations, are available to non-profitagencies that apply to the 5thannual Donner Canadian Foun-dation Awards for Excellence inthe Delivery of Social Services. Thisunique recognition program, createdspecifically for Canada’s non-profitsector, calculates agency performance inten areas: finance, income independence, strategicmanagement, board governance, volunteers, staff, innovation,program cost, outcome monitoring, and accessibility.

Nine awards valued at $5,000 each will be presented in the categories of Child CareServices, Crisis Intervention, Counselling, Alternative Education, TraditionalEducation, Prevention and Treatment of Substance Abuse, Provision of BasicNecessities, Services for People with Disabilities, and Services for Seniors. Inaddition, the prestigious $20,000 Award for Excellence will be presented to theorganization that exhibits the highest level of overall excellence. Participating agen-cies receive useful, pertinent performance information to help them improve theirservice delivery. The deadline for applications is Tuesday, April 30, 2002.

Further information and the 2002 Application Form are available on the Internetby clicking on the Donner icon at www.fraserinstitute.ca, or fromKarina Wood, Donner Project Co-ordinator, 4th Floor – 1770 Burrard Street,Vancouver BC V6J 3G7 Tel: (604) 688-0221, ext. 554; Fax: (604) 688-8539;E-mail: donnerawards@fraserinstitute.ca.

Call forApplications

E n v i r o n m e n t

by Tracy Wates

Canada, home to an estimated70,000 species, according to the

Canadian Endangered Species Conserva-tion Council (CESCC), is on the vergeof enacting destructive legislation to pro-tect endangered species. Bill C-5, theSpecies at Risk Act (SARA), has beenwinding its way through parliamentsince last February and will be lawwithin the year unless something unex-pected occurs. The federal Liberal gov-ernment claims that SARA is a necessaryand important step in protecting endan-gered species in Canada, but evidencefrom the United States (which enacted asimilar law in 1973) tells us that SARAwill not only fail in its mission, but willhasten the demise of many species.

The main reason for the lacklustre per-formance of endangered species legisla-tion in the US is failure to account fornegative incentives created by the com-mand-and-control law that robs land-owners of their ability to use and enjoytheir land if it contains an endangeredspecies. The law makes it illegal to kill orharm an endangered species and, if the

listing contains regulations pertaining tothe species habitat, no one may alter thehabitat, thus significantly affectingresource users and landowners. More-over, the regulations often drasticallydecrease land values without any com-pensation. Instead of encouraging astewardship ethic, this often pits land-owners against endangered species.Landowners are motivated to maketheir land unattractive for endangeredspecies as a precaution, and in somecases, may kill or harm species if theyare already present.

Incentives matter—inboth the US and Canada

The disincentive for conservation isclearly illustrated by the story of BenCone, who owns 7,200 acres in NorthCarolina. Deforested in the 1930s, theland gradually regained healthy standsof long-leaf pines which were ideal forwildlife, including songbirds, deer,quail, wild turkey, and the endangeredred-cockaded woodpecker. Cone care-fully managed his land up to 1991 byinitiating frequent controlled burns andsmall timber sales. However, in 1991,the US Fish and Wildlife Service identi-fied 1,560 acres of Cone’s property aswoodpecker habitat, and Cone lost theright to harvest timber within ahalf-mile radius of each bird. The valueof his land fell to $86,500 from a previ-

ous value of $2,230,000—a 96 percentloss. The 29 red-cockaded woodpeckerswho took up residence in Cone’s forestcost him $73,914 each—a cost he hasborne alone (Simmons, 1999). Conenow clear-cuts around the woodpeckercolonies to prevent them from spread-ing to more of his property and he haschanged his rotation of harvesting tim-ber on the rest of his land from 80 yearsto 40 years to avoid attracting morewoodpeckers to the old trees they prefer(O’Toole, 1996). Cone’s neighbours,alerted by him of possible losses shouldwoodpeckers nest on their land, alsobegan clear-cutting their timber adja-cent to Cone’s property.

Similar examples of unintended conse-quences can be found in Canada. Theblue racer snake, for example, can growup to two metres in length and cantravel at a speed of seven kilometers anhour. It can only be found on PeleeIsland in Canada. About 300 snakes liveon the 4,000-hectare Pelee Island, ofwhich about 810 hectares remain unde-veloped (Jaimet, 2001).

In 1993, the Ontario Ministry of Natu-ral Resources and the World WildlifeFund funded a study of the blue racer.The researchers were concerned aboutnesting and hibernating sites and con-vinced some landowners to voluntarilylet them construct domes of earth andvegetation on their land for the snakesto use. The island’s hunting club wasone of the landowners to agree to housean artificial snake habitat on its land.

The trouble began in 1999 when theOntario government blocked a pro-posed development on the island on thegrounds it would disturb blue racerhabitat. The province produced a mapshowing blue racer habitat to support itsclaims. When landowners on PeleeIsland who had voluntarily helped withsnake conservation discovered that their

A p r i l 2 0 0 2 | 15

Compensation in theSpecies at Risk Act

Tracy Wates is pursuing her master’sdegree at the Goldman School of PublicPolicy at the University of CaliforniaBerkeley, specializing in environmentalpolicy. She spent the summer of 2001working as an intern at The FraserInstittute.

Fraser Forum

property was included on the map, theywere insulted and angry. Some land-owners promptly bulldozed the sectionsof their property that were identified asblue racer habitat to ensure that thegovernment wouldn’t interfere withfuture farming or development plans.The snake hibernation site built at thehunting club was also destroyed.

Compensation inCanada’s law?

The Canadian iteration of the Endan-gered Species Act seems to acknowledgethis incentive problem by containing asection discussing compensation. How-ever, it is very vague, and leavescompensation almost entirely in thehands of politicians, thus creating inse-curity and disincentives for conserva-tion and cooperation. The Liberalgovernment rebuffed efforts during thecommittee review of SARA to makecompensation full and mandatory,instead leaving the language ambiguousas to when and how much compensa-tion will be provided.

Compensation programs that have beenestablished have demonstrated thatwhen you remove economic pressures,landowners tolerate, and even welcome,endangered species to their land. Oneexample is the Wolf CompensationTrust in the US, established byDefenders of Wildlife in 1990 followingthe reintroduction of wolves to Yellow-stone National Park and surroundingareas. The most ardent opponents of thewolf reintroduction scheme were ranch-ers who feared for the lives of their mostprecious economic asset—their live-stock. But by instituting a compensationprogram for livestock losses due to wolfpredation, Defenders removed the eco-nomic reasons for ranchers to huntdown wolves, and thus have signifi-

cantly reduced the amount of illegalwolf killing (Fischer, 1998).

The rhetoric surrounding SARA empha-sizes the role of partnerships, voluntarystewardship, and cooperation. However,the actual text of the act shows littlesimilarity to the government’s publishedand verbal descriptions. For instance,the available on-line version of the act is77 pages, but only two pages describestewardship, while more than 20 pagesare devoted to compliance, investiga-tions, penalties, and the like. Only half apage is dedicated to compensation.

Section 64 stipulates: “The Minister [ofEnvironment] may, in accordance withthe regulations, providecompensation to anyperson for losses sufferedas a result of an extraor-dinary impact of theapplication [of the prohi-bitions pertaining to hab-itat].” Terms such as“extraordinary impact”and “may … providecompensation” give thegovernment the preroga-tive to deny claims lateron the basis that the act’simpacts were not extraordinary, or sim-ply that the governmental also “maynot” choose to provide compensation.

Fairness andcompensation

All Canadians benefit from endangeredspecies protection and recovery—evenif that benefit is just the value of know-ing that the burrowing owl, swift fox, orVancouver Island marmot continues toexist—so why must a select few bear theburden?

Approximately 22.2 percent of Canadi-ans live in small towns or rural settings

(Pitblado, 1999)—where the vastmajority of species at risk also live.Putting the monetary burden on mem-bers of that group does not decrease thecosts—they are simply borne by asmaller segment of the population. Howis that fair, either to the landowners orto the species themselves, whose pres-ence creates bitterness?

Full compensation would counterincentives inherent in the legislation forlandowners not to report a species ontheir property and instead to dispose ofit or destroy its habitat before restric-tions can be placed. While compensa-tion may not completely reverse thoseincentives—especially if the procedure

for claiming compensation is bureau-cratic and frustrating—it may alleviatethem, especially for well-meaning citi-zens who sincerely care about protectingspecies—which the vast majority ofCanadians do.

Will ranchers who now participate inprograms like the Burrowing Owl Pro-ject or the Swift Fox Program continueto do so when they know that attractingendangered species to their land mightlead to restrictions and couldcriminalize land improvements theywish to make? Many groups such as theCanadian Federation of IndependentBusinesses and the Canadian Cattle-men’s Association (CCA) have sent let-

16 |

All Canadians benefitfrom endangered speciesprotection and recovery...so why must a select few

bear the burden?

W h o P a y s ?

ters and petitions to Ottawadisapproving of SARA and calling forchanges that include voluntary conser-vation measures and full compensation.The CCA’s letter is blunt and clear:“…incentives, including compensation,will achieve far more for species at riskon private land than will “sticks.” Afterall, if biodiversity is good for Canada,then Canadians should be prepared topay for the cost of preserving it!” (CCA,Sept. 17, 2001).

Recommendations

The federal government should makefull compensation and voluntary stew-ardship its focus in any legislation deal-ing with conservation on private land.Though it claims it is doing so already,the government must truly show a will-ingness to pay for its policies by defin-ing clear rules for full and faircompensation. It is also important thata large fraction of the budget for pro-tecting endangered species goes directlytowards concrete conservation andstewardship programs, and does not getfunneled away in the costs of bureau-

cracy. (It is troubling to note thatthough $90 million has been allocatedfor species at risk over the next threeyears, only $45 million of that is ear-

marked for stewardship efforts.)

Many Canadians are very concernedabout species at risk. However, if speciesare indeed at risk and need protecting,

the solution is not federal legislationthat employs command and controltechniques while paying lip service tothe concept of voluntary stewardship.Rather, a system of directed conserva-

tion that engages landowners andresource users while providing a com-

plete system of compensation would bemuch fairer and more effective.

Bibliography

House of Commons of Canada, 1st Session,37th Parliament, 2001. Bill C-5. Availableon the Internet athttp://www.parl.gc.ca/37/1/parlbus/chambus/house/bills/govern-ment/C-5/C-5_1/C-5_cover-E.html.

Canadian Cattlemen’s Association (CCA)(2001). Letter to Jean Chretien, PrimeMinister. Sept. 17.

Canadian Endangered Species ConservationCouncil (CESCC) (2001). Wild Species2000: The General Status of Species inCanada. Ottawa: Minister of PublicWorks and Government Services Canada.

Canadian Federation of Independent Busi-nesses (2000). “Species at Risk Act: ADeclaration of Principle.” Letter to DavidAnderson, Environment Minister. March13. Available on the Internet athttp://www.cfib.ca/agri/5092.asp.

Fischer, Hank (1998). The Wolf Settles in atYellowstone. Defenders of Wildlife. Sum-mer.

House of Commons debate (2001). SecondReading, Bill C-5. February 28.

Jaimet, Kate (2001). “How not to protect acreature at risk.” The Ottawa Citizen.Aug. 29. Posted to www.kingsnake.com/forum/law/messages/5239.html.

Jones, Laura and Liv Fredricksen (1999).Crying Wolf? Public Policy on EndangeredSpecies in Canada. The Fraser Institute,Vancouver, BC.

Ministry of Environment, Lands and Parks,Province of British Columbia. HabitatConservation Trust Fund. On theInternet at http://www.hctf.ca/

O’Toole, Randal, ed. (1996). DifferentDrummer: The Endangered EndangeredSpecies Act. Oak Grove, OR: ThoreauInstitute. Vol. 3, no. 1.

Pitblado, J. Roger et al. (1999). AssessingRural Health, Laurentian University,Health Canada: The Centre for Rural andNorthern Health Research, June.

Simmons, Randy T. (1999). “The Endan-gered Species Act: Who’s Saving What?”The Independent Review. Vol. 3, No. 3(Winter). �

A p r i l 2 0 0 2 | 17

Fraser Forum

by Paul Coninx

The reception of The Skeptical Envi-ronmentalist has revealed the envi-

ronmentalist community’s dark side.

The book’s author, Bjørn Lomborg, anassociate professor of statistics at theUniversity of Aarthus, Denmark, arguesmeticulously that the current state ofthe world is not as bad as most peoplebelieve. The environment still has prob-lems, but not catastrophes; the humancondition needs improv-ing, but it is still vastlybetter now than it hasever been. For the worldto waste resourcesaddressing exaggerated ornon-existent threats onlyslows further progress inimproving both thehuman condition and the environment,especially the developing world.Lomborg writes: “The point here is togive us the best evidence to allow us tomake the most informed decision as towhere we need to place most of ourefforts” but that “… frequently the

offered solutions are grossly inefficient”(Skeptical Environmentalist, p. 5).

Lomborg does not rant on about exag-gerations and dishonesty found in cur-rent environmentalist dogma, but coollyand clearly presents the evidence. Thebook is divided into 25 distinct chaptersthat deal with such topics as humanwelfare, hunger, air pollution, waterpollution, and global warming. Eachchapter is a stand-alone; readers canopen the book to whatever topic inter-

ests them. In addition, the book comes

with an extensive index, 173 informative

graphs, 9 tables, and 2,930 references

that frequently include the same research

commonly cited by environmentalists.

Although many of Lomborg’s critics

accuse the Dane of distorting research

findings and using selective examples to

make his points, they seldom provide

convincing examples to make their own

points. Instead, the scientists and activists

themselves shamelessly quote Lomborg

out of context and resort to insults and

innuendoes; one even threw a pie at

Lomborg at a bookstore in Oxford.

Whether or not global warming is atleast partially human driven (Lomborgbelieves that it is) and whether it willproduce human, environmental, andeconomic costs (Lomborg believes itwill), there still remains the question asto what exactly we can do about it.There are too many people on earth forus to go back to living like our ances-tors, chopping down trees for fuel andusing renewable bows and biodegrad-able arrows to shoot animals for food.Greenhouse emissions would probablycontinue to increase and most of uswould die. The earth can support somany of our species only becausehuman ingenuity makes it possible.Even most professional environmental-ists pay lip service to the need for sci-ence and technology by encouraginggovernments to give generous handoutsto their allies in the solar, wind, andhydrogen fuel fields.

Many of Lomborg’s criticsagree with him that the arbi-trary provisions of the Kyototreaty will have only aminiscule effect on reducingglobal warming. Oneresearcher Lomborg quotesas saying “it might takeanother 30 Kyotos over thenext century,” does not

address, let alone deny, the statement inhis scornful review of Lomborg’s book.1

Even the man who threw the pie agrees:“Specifically with regard to Kyoto,Lomborg makes great play of the factthat if implemented, the cuts it man-dates in CO2 emissions will have almostno effect on the climate. Well, we allknew that already, which is why manypeople (including myself) have criticised[sic] it as being inadequate. Sincegreater cuts, involving more countries,are likely to be agreed to take effect dur-ing the ‘second compliance period’ after2012, Lomborg’s exercise of calculatingKyoto’s effect on the climate by 2100 is

18 |

A Measurement of theReal State of the World

Review of The Skeptical Environmentalist: :Measuring the Real State of theWorld

by Bjørn Lomborg,Cambridge University Press, 515 pages

Paul Coninx has written on consumer,safety, and technical issues for over 15years. He is author of the 1998 FraserInstitute publication Vehicle EmissionsTesting: AirCare, Drive Clean, and thePotential of Inspection and MaintenancePrograms in Canada. He holds a degreefrom McGill University.

Fraser Forum

at best irrelevant and at worst intention-ally misleading.” Clearly, Kyoto’s adher-ents see it as only a first small steptowards much greater restrictions. Butwhy is there so much support in theenvironmentalist community for Kyotowhen it provides so little benefit whilethreatening the economies of the verycountries most able to develop waysto avoid or mitigate environmentalchallenges?

Profit and self-interest of those who seeKyoto as a meal ticket may have some-thing to do with it. But Kyoto is alsoattractive to people who distrust whatthey see as greedy capitalism and stillbelieve in the virtue of the extensiveinternational central planning andredistribution of wealth (“social jus-tice”) that Kyoto represents for them.Of course, if large-scale central planningand egalitarianism actually did work,the Soviet Union would have been anenvironmental paradise rather than thedisaster it was, but there will forever be

those who believe that even though apolicy has always failed in the past, itwill do the job if only given one moretry. For them, environmentalism is justanother way to limit or control whatthey deem to be the antisocial (orantiglobal) activities of others. That iswhy many self-described environmen-talists also tend to support leftist causes,activist governments, and attempt tochange human behavior through lawsand regulations more than throughexample and persuasion. This distrust ofthe masses is illustrated by the negativecomments made by prominent environ-mentalists in the Los Angeles Times in1989 when so-called “cold fusion”appeared to offer virtually unlimitedcheap, clean energy. While one mightthink this would be a great thing formankind, Paul Ehrlich is quoted as say-ing that cold fusion would be “like giv-ing a machine gun to an idiot child,”and Jeremy Rifkin reportedly said, “it’sthe worst thing that could happen toour planet.”2

The Skeptical Environmentalist is essen-tial reading for anyone interested in theenvironment—although it is clear thatthe environmentalist establishment doesnot want it to be read—and the bibliog-raphy alone is worth the price of thebook. Critically comparing the tone andthe substance of the book to that of itscritics (much of it can be found on theinternet) also gives a person importantbut often depressing insights into thevalues and goals of the environmentalistcommunity. A fair reading of The Skep-tical Environmentalist will reveal thatenvironmentalist establishment claimsthat Lomborg is anti-environment areabsurd. While Lomborg is careful tokeep facts separate from value judge-ments, nothing is stopping a person or acountry from choosing to spend sub-stantial amounts of money to save aspecies of tiger or butterfly, to designatea nature preserve, provide safer water,or to reduce urban air pollution. How-ever, to avoid waste and misdirection ofresources, the facts must be clear, asmust be the environmental goal, thereasons for pursuing the goal, and themost effective means to achieve thegoal. Ultimately, the exaggerations ofrisk, distortion of fact, and general fearmongering found in matters concerningthe environment will always be distract-ing and counterproductive.

References

Ciotti, Paul (1989). “Fear of Fusion: What ifit Works?” Los Angeles Times. April 19.Quoted in The Skeptical Environmentalist,p. 321.

Mahlman, Jerry D. (2001) “GlobalWarming: Misuse of Data and Ignoranceof Science—A review of the “globalwarming” chapter of Bjørn Lomborg’sThe Skeptical Environmentalist: Measuringthe Real State of theWorld.” Available onthe Internet at www.ucsusa.org/ environ-ment/mahlman.pdf. �

A p r i l 2 0 0 2 | 19

The Fraser Institute 17th AnnualDr. Harold Walter Siebens Lecture

and AGM Breakfast

Friday, April 19, 2002 in Vancouver

featuring STEVE FORBES,President and CEO, Forbes Inc. &Editor-in-Chief, Forbes magazine

“Reviving Prosperity Here and Around the WorldWhile Conquering Terrorism”

Time: Registration Desk 7:00 am; Breakfast 7:30 am; Adjournment 9:00 amLocation: The Fairmont Hotel Vancouver, 900 West Georgia Street

Cost: FI members—$65 / Non-members—$75

TO REGISTER Fax: (604) 688-8539

Phone: (604) 714-4578 or 1(800) 665-3558 ext. 578E-Mail: events@fraserinstitute.ca / Web site: www.fraserinstitute.ca/events/

B o o k R e v i e w

by Hymie Rubenstein

The number of Canadian farmers hasnow declined to about one percent

of the population, according to a recentStatistics Canada report (The Daily, Feb-ruary 22, 2002). Only 313,000 peopleare employed growing crops or raisinganimals, a 26 percent drop since 1998.

This, of course, is part of a verylong-term trend. In 1891, one in fiveCanadians was a farmer; by 1951, thefull-time farming population haddeclined to about one Canadian in 12.

Members of the farm lobby and theirnostalgic urban supporters have repeat-edly decried this trend, arguing that arich and vibrant rural way of life is inex-orably being destroyed by the cruelforces of market competition, mechani-zation, and rural-urban migration.There have been repeated calls over theyears by organized farm-lobby groups,dramatized by noisy demonstrations atprovincial legislatures and tractor cara-vans to Parliament Hill, to “save thefamily farm” by increasing agriculturalsubsidies to compete with the huge

pay-offs given to farmers in the UnitedStates and Western Europe.

The federal government would bewrong to accede to any more calls forfarm aid. Past bail-outs have done noth-ing to reverse the flight from farming,and agricultural supports represent anunfair cash transfer from the averageCanadian household—worth about$250,000 when its net worth is addedup—to the average farmhousehold— still worthabout $1,000,000 afterits debts are subtracted(Solomon, 2001).

But there are more com-pelling reasons to ignoreconcerns about declinesin the farm population:national economicgrowth and individualstandards of living bothincrease as people move out of primary

agrarian production. These benefits can

be easily seen by comparing Canada’s

socio-economic situation and division

of labour with countries that have high

ratios of farmers. Such a comparison

shows that the lower the proportion of

farmers, the higher the levels of eco-

nomic prosperity and social well-being.

The large West African country ofAngola is one of the most impoverishednations on earth.1 Per capita GDP is apaltry $US 1,000, average life expec-tancy is a mere 39 years, at least 50 per-cent of Angolans are unemployed orunderemployed, and only 42 percentcan read and write. But even thoughonly two percent of the country’s landmass is under annual cultivation, fully85 percent of Angolans are small-scalefarmers barely eking out a hand-to-mouth existence on small plots of land.Despite its huge proportion of primaryfood producers, a dearth of moderntechnology and off-farm employmentmeans that productivity is so low thatAngola has to import most of its food.

The mid-sized Western Caribbeancountry of Haiti is also a very poorcountry, probably the poorest in theWestern Hemisphere. Per capita GDP isonly $US 1,800, average life expectancyis under 50 years of age, and a mere 45percent of Haitians are literate. Some 20percent of the land is classified as arableand 70 percent of Haitians depend on

agriculture (mainly subsistence cultiva-tion using simple hand tools), whichemploys about two-thirds of the eco-nomically active work force. About 80percent of the population lives in abjectdestitution.

The minuscule eastern Caribbeannation of Barbados is well on the roadto developed-country status. The per

20 |

Why Fewer FarmsMeans GreaterProsperity

Hymie Rubenstein is a Professor ofAnthropology at the University ofManitoba.

Fraser Forum

... agricultural supportsrepresent an unfair cashtransfer from the averageCanadian household ...

capita GDP is an impressive $US 14,500,average life expectancy has climbed to73 years, unemployment is only around11 percent, and nearly 98 percent ofBarbadians can read and write, one ofthe highest literacy rates in the world.Although 37 percent of the country’sland base is planted in annual crops(mainly sugar cane), less than 10 per-cent of the people are farmers or farmworkers. This represents a huge declinesince the early 1950s when Barbadiansbegan to reject the backbreaking workof manual plantation labour under asweltering tropical sun for more lucra-tive, comfortable, and prestigiousemployment in the emerging servicesector, including piece work in the mul-tinational “sweat shops” that foes ofglobalization so love to demonize.

Canada is one of the richest nations onearth with a per capita GDP of over $US25,000. The average life expectancy ofCanadians is 80 years, unemploymentstands around 7 percent, and basic liter-acy is 97 percent. Massive mechaniza-tion and an adherence to economies ofscale mean that Canada has one of themost efficient systems of on-farm foodproduction in the world.

Finally, the tiny south-east Asianisland-state of Singapore is even moreprosperous than Canada with a percapita GDP of $US 26,500, the fifthhighest in the world. Average life expec-tancy is 80 years, unemployment is amere 3 percent, and 94 percent ofSingaporeans are literate. Only two per-cent of the land is planted in non-per-manent crops. According to censusreports, the agricultural sector is sosmall that it makes up a negligible partof GDP and employs an inconsequentialpart of the labour force.

Scores of other examples from everycorner of the world could be cited toshow the strong inverse correlation

between many positive social and eco-nomic indicators—per capita wealth,literacy rates, life expectancy, employ-ment levels, poverty rates, etc.—and theproportion of the population workingthe soil or rearing animals.

This relationship between socio-eco-nomic well-being and the size of thefarming population reminds me of aride I took past several agriculturalproperties in Southwestern Manitobawith a farming friend of mine a fewyears ago. As we drove past the farms,he distinguished between profitable andmarginal operations. The latter, he toldme, were either undersized or under-cultivated, suffered from poor soil con-ditions, or lay in the hands of conserva-tive cultivators too timid to experimentwith grains other than wheat.

What struck me was his uncompromis-ing emphasis on entrepreneurship. Afarm, he repeatedly told me, is first andforemost a business enterprise. Hismantra, “No enterprise, no business,” isstill fresh in my mind. A gratefulex-recipient of Crow Rate subsidies anda current beneficiary of tiny rural prop-erty taxes (a few hundred dollars forthousands of acres), he neverthelesslaughingly viewed both as boondogglesthat rewarded “bad business sense.” Healso dismissed the idea of “attachmentto the soil” as starry-eyed sentimental-ity, noting that his own operation, likeall those around him, was supported byoccasional bursts of seasonal labourcomfortably cocooned in an air-condi-tioned tractor. All agricultural inputs,he reminded me, including all tools,machinery, fuel, seed, fertilizer, pesti-cides, and herbicides, not to mention allfood, clothing, and shelter for him andhis family, came from off-farm, mainlyurban sources.

He also pointed out that there were farmore people involved in the storage,

shipping, processing, packaging, adver-tizing, and sale of agricultural productsthan were involved in its primary pro-duction, an assertion that suggested thatthe traditional claim that one Canadianfarmer feeds 40 people should be turnedon its head.

My friend also mocked the idea of the“family farm.” None of his childrenaspired to a career in agriculture, hiswife ran an on-farm (but non-farm)business, and though he was still in hismid-fifties, he had made enough moneyin only 25 years of farming to takesemi-retirement on the idyllic Carib-bean island where he and his wife tooktheir annual three-month holiday.

Canadian farmers and their families aregenerally well educated, hardworking,and ambitious. If agricultural subsidiesin Europe and America are producing aworldwide glut of cheap food, evenmore of them should be encouraged toseek other career opportunities.

When it comes to socio-economicdevelopment and high levels of living,fewer Canadian farmers is something weshould all applaud.

Note1All the country statistics in this article come

from 2001 figures given in the CIA WorldFactbook. Per capita GDP statistics are calcu-lated based on Purchasing Power Parity.

References

CIA World Factbook. Available on theInternet at www.cia.gov/cia/publica-tions.factbook.

Solomon, Lawrence (2001). “Dairy Farmersare Milking Canadian Consumers.”National Post. January 16.

Statistics Canada (2002). The Daily. Febru-ary 22.�

A p r i l 2 0 0 2 | 21

A g r i c u l t u r a l P o l i c y

by Neil Seeman

Ask Canadians whether they wel-come a bilingual and multicul-

tural population and they will nod theirheads enthusiastically. But does thatmean they support government-fundedbilingualism and multiculturalism poli-cies? Not necessarily. Even slight nu-ances in poll questions can have aprofound effect on results.

In an Environics poll commissioned bythe Association of Canadian Studies(ACS), an umbrella group for collegeand university Canadian studies depart-ments, 76 percent of respondents feltEnglish and French should be “the officiallanguages of Canada”; 78 percent said thetwo languages should have “equal sta-tus, rights and privileges.” The NationalPost reported: “Language policy haswide backing, poll says” (March 4).

Yet support for linguistic equality is notsynonymous with support for Canada’scurrent “language policy.” Canada’slanguage policy has meant subsidies to apanoply of Heritage and Treasury Boardprograms, some devoted to quotas forFrench-speaking civil servants, others to“infrastructure plans” to boost “Frenchculture.”

To the limited extent that the studygauged Canadians’ support for subsi-dies, the results were unclear. Fewrespondents wanted to boost “federalsupport”; 21 percent said “federal sup-

port” to Francophone minorities out-side Quebec should be reduced; 16 per-cent felt the same about “federalsupport” to anglophone minoritiesinside Quebec.

The survey failed to define “federal sup-port” (e.g., does it mean the accommo-dation of existing, private initiatives orthe creation of new, public ones?) Hadit clarified this issue, the survey mighthave found that a majority of Canadiansreject current “language policy.”

Another poll, also by Environics for theACS, purported to show that Sept. 11hadn’t shaken Canadians’ support formulticulturalism policy. “Multicultural-ism policy working, national surveysays,” rang the headlines in someSoutham papers (Feb. 18). But the sur-vey didn’t say that. It measured Canadi-ans’ tolerance, not their support for thepolicy of multiculturalism, which shep-herds tax dollars to organizations thatpromote “cultural awareness,” affirma-tive action in hiring, and “anti-racism”programs in public schools.

Although the ACS analysis acknowl-edged in its preamble that “variousmeanings have been attributed to multi-culturalism,” the survey didn’t distin-guish among them. Respondents agreedoverwhelmingly (82%) with the state-ment: “The preservation and enhance-ment of the multicultural heritage ofCanadians is an objec-tive that the govern-

ment should support.” But these areslippery words; “support” can be inter-ventionist or passive (e.g., “I supportthe use of seatbelts; I don’t supportseatbelt laws”). “Multiculturalism” isdistinct from “multicultural heritage.”Historically, the word “heritage” hasbeen alternately associated with divineright, legal rights to property, even retri-bution in the afterlife.

Environics asserts that the poll showshow “the vast majority does not agreewith the many arguments suggestingthat multiculturalism is in conflict withother important objectives of Canadiansociety.” But respondents weren’t pre-sented with all those “many arguments.”Government financing wasn’t mentioned.No economic arguments were advancedagainst multiculturalism policy, forinstance, the idea that public financingfor ethnic and cultural groups crowdsout private contributions or createsdependencies on government largesse.

In those instances where respondentswere presented with (limited) argu-ments against multiculturalism policy,support dipped considerably. Askedwhether emphasizing the multiculturalheritage of Canadians was a threat to“social unity and solidarity,” 64 percentsaid no and 32 percent said yes. Wouldsupport have dipped further had respon-dents been questioned about employ-ment equity practices in the public sector?

So what do these surveys really say?They shouldn’t have made headlines.For all we can conclude from these twostudies is that Canadians are a tolerantpeople: They embrace English andFrench equally; they welcome peoplefrom different cultures. Didn’t we al-ready know that? It will take a moresophisticated survey to determinewhat Canadians truly think ofstate-funded multiculturalism and

language policies. �

22 |

Neil Seeman (neils@fraserinstitute.ca) is Director of the CanadianStatistical Assessment Service, a division of The Fraser Institute inToronto. He received his Juris Doctor from the University of TorontoLaw School and a Master’s in public health sciences from Harvard.

And the Survey Says?

Fraser Forum

by John R. Graham

One option for Canadian healthcare reform is to increase the

ability of for-profit hospitals to provideservices to publicly-insured patients.

Opponents of increased choice predictthat costs will be higher in such hospi-tals than in ones capitalized by govern-ments, simply because they includeprofits. For example, Maude Barlow ofthe Council of Canadians estimates thatinvestors demand returns of 15 percent(Barlow, 2002, p. 69). She erroneouslybelieves that this is simply tacked ontooperating costs. However, in a competi-tive hospital market, profits would notbe determined by what investorsdemand, but by what is left over afterthe hospital pays its expenses and taxes.Investors have the last claim on the cashflow, not the first.

Furthermore, private hospitals, eitherfor-profit or non-profit, often providebetter value for money than thosefunded by governments (Zelder, 2000).Nevertheless, sustainable for-profit hos-pitals would have to earn returns fortheir investors. However, these profits

would be a benefit to Canadians, becausethey would bring to life much of the deadcapital trapped in our health care sys-tem. Canadians would be able to investin these hospitals and increase the assetsavailable to them when they retire.

These potential investors are not fat cats.In 1998, people who earned under$60,000 made 79 percent of all contribu-tions to Canada’s RRSPs and RPPs, com-prising 56 percent of the dollarsinvested (Emes, 2001, p. 35). The Cana-dian government already punishes themthrough a regulatory system that limitstheir ability to diversify their assets ade-quately, and imposes unnecessarily hightransaction costs on their investments(Clemens and Mihlar, 1999). The gov-ernment further punishes them by pro-hibiting their investment in valuableassets, namely, hospitals.

A recent report by the Change Founda-tion, the Canadian Imperial Bank ofCommerce, and the accounting firmDeloitte & Touche LLP shows the finan-cial state of 137 of Ontario’s 157 hospi-tal corporations as of March 31, 2001(Change Foundation, 2001). The hospi-tals’ revenues were $11 billion, of which

78 percent came from the provincialhealth ministry. Other charges topatients, research grants, and miscella-neous revenues (e.g. parking) accountedfor the rest (Change Foundation, 2001,p. 7). The group reported a net deficit ofabout $8 million. However, there was alarge variance in the results: 71 hospitalsreported deficits, for a gross loss of $101million, and 66 hospitals reported sur-pluses, for a gross gain of $93 million(Change Foundation, 2001, p. 11). Thebook value of the assets was almost $10billion dollars, of which about threequarters is claimed by liabilities and onequarter by the “fund balance,” orretained earnings (Change Foundation,2001, pp. 31-32).

Comparing these figures to comparableones from a jurisdiction where a num-ber of for-profit hospitals exist pointstowards an estimate of what Ontario’shospitals are worth. The Federation ofAmerican Hospitals represents theinterests of for-profit hospitals in theUnited States. Thirteen of its 22 mem-bers are listed on the stock market.Table 1 compares consolidated financialresults for those corporations to thosein Ontario reported by the ChangeFoundation.

The first thing to notice about the twosets of financial data is how similar thestructure of assets and capital is in bothsystems. Both hold about one quarter oftheir worth in current assets. TheOntario hospitals hold a significantshare of assets in investments, whereasthe US hospitals do not. These invest-ments may be attributable to fundsadvanced by the Health Ministry foruses including capital projects not yetcompleted (Change Foundation, 2001,p. 22). Investors in the American hospi-tals do not appear to tolerate managers’investing in financial assets rather thantheir hospitals’ core resources. Thisgives optimism that, under profit-ori-

A p r i l 2 0 0 2 | 23

Dead Capital inOntario’s Hospitals

John R. Graham (johng@fraserinstitute.ca) is Director ofPharmaceutical Policy Research at The Fraser Institute. He earnedhis B.A. (Hons) in Economics and Commerce at the RoyalMilitary College of Canada and his MBA at the London BusinessSchool, University of London. He is the author of a forthcomingpaper on alternatives to reference-based pricing, to be published byThe Fraser Institute.

Fraser Forum

ented management, Ontario’s hospitalswould be quicker to invest in neededcapital assets such as MRI machines, CTscanners, and other diagnostic equip-ment which Canada’s public system sowoefully undersupplies (Harriman,McArthur, and Zelder, 1999).

The Ontario hospitals are more highlyleveraged than the US ones, with liabili-ties comprising 76 percent of assets ver-sus 64 percent in the US, perhapsbecause Ontario’s hospitals’ debts areexplicitly or implicitly guaranteed by theprovince. However, the largest Ameri-can company in the sample, HCA Inc.has liabilities of 74 percent of assets,indicating that investors would acceptthe degree of leverage in Ontario’s hos-pitals. As well, many of the 137 Ontariohospitals would have less leverage thanthe consolidated figure.

The market value of the US hospitalcorporations’ equity is over US$67 billion,implying an equity multiplier of 3.6 timesbook value. This points to the market

value of the Ontario hospitals’ fundbalance, were it converted to equity.

All things being equal, the fact that theOntario hospitals are more highly lever-aged than the American ones implies alower equity multiplier than 3.6. How-ever, the equity multipliers for the UShospitals range from 1.37 to 6.18, andare driven by earnings as well as capitalstructure. These multipliers imply avalue between $3 billion and $15 billionfor the equity trapped in the 137Ontario hospitals analyzed. If Ontario’shospitals were privatized, not all wouldbecome profit-seeking companies.According to the Federation of Ameri-can Hospitals, only 15 percent of UShospitals are such companies (Federa-tion of American Hospitals, 2001, p. 8).This level of conversion would still freeup somewhere between half a billion totwo-and-a-half billion dollars of oppor-tunity for investors.

Maude Barlow worries that hospitals,when operated as businesses, “will be

squeezed for profit all down the line”(Barlow, 2001, p. 70). The Americanexperience contradicts her fears. Of the13 US hospital corporations analyzed,11 were profitable in 2001. However, onlyone paid a dividend. For the other 10,shareholders preferred not to take anyearnings out of their companies. Of atotal of US$2.5 billion of earnings, 99.66percent was reinvested in the hospitals.

Allowing Ontario’s (and Canada’s) hos-pitals the option of converting tofor-profit status will launch a virtuouscircle where individuals have moreoptions for investing for their retire-ment, hospitals’ managers have betterincentives to use resources effectively,and patients enjoy the benefits of morecapital investment.

References

Barlow, Maude (2002). Profit is not the Cure.Ottawa, ON: Council of Canadians.

Clemens, Jason, and Fazil Mihlar (1999).The 20% Foreign Property Rule: IncreasingRisk and Decreasing Returns on RRSPs andRPPs. Critical Issues Bulletin. Vancouver,BC: The Fraser Institute.

The Change Foundation (2001). FinancialReview of 137 Ontario Hospitals. Toronto,ON: The Change Foundation (Nov).

Emes, Joel (2001). “September Questionsand Answers.” Fraser Forum (December):35-37.

Federation of American Hospitals (2001).Building Healthy Communities, One Patientat a Time. Annual Report. Washington,DC: Federation of American Hospitals.

Harriman, David, William McArthur, andMartin Zelder (1999). The Availability ofMedical Technology in Canada: An Inter-national Comparative Study. Public PolicySource No. 28. Vancouver, BC: The Fra-ser Institute.

Zelder, Martin (2000). How Private HospitalCompetition Can Improve CanadianHealth Care. Public Policy Source No. 35.Vancouver, BC: The Fraser Institute. �

24 |

Table 1: Comparative Financial Data for Hospital Corporations

in the US and Ontario, March 31, 2001

United States Ontario

’000s of US$ % of Assets ’000s of CDN$ % of Assets

Current Assets 13,023,883 25% 2,394,335 24%

Fixed Assets 37,797,716 73% 6,002,177 61%

Investments 475,140 1% 1,406,835 14%

Other 430,860 1% 58,307 1%

Total Assets 51,727,599 100% 9,861,656 100%

Liabilities 33,103,852 64% 7,454,014 76%

Equity (“fundbalance” in ON)

18,623,747 36% 2,407,641 24%

Market Cap, March 15, 2002 67,111,000

Price/Book Value of Equity 3.6

Sources: US financial data consolidated by author from Wall Street Journal Online (wsj.com)for Beverley Enterprises, Community Health Systems, HCA, HCR Manor Care, Health Man-agement Associates, HealthSouth, Lifepoint Hospitals, SunLink Health Systems, ProvinceHealthcare, Select Medical, Tenet Healthcare (nb: balance sheet of Feb. 28), Triad Hospitals,and Universal Health Services. Ontario data from The Change Foundation, 2001, pp. 31-32.

P h a r m a c e u t i c a l s

by Joel Emes

Q: Has BC lost its status as one ofthe three “have” provinces? Has

BC always been a “have” province?

A: Yes, as British Columbia re-ceived equalization payments in

1999/00 and is expected to receive themin 2000/01 and 2001/02, it is currently a“have-not” province. According to themost recent data from the federal Fi-nance Department, British Columbiareceived $94 million in equalizationpayments in 1999/00 and is expected tobe eligible for $132 million in 2001/02,and $327 million in 2002/03. Table 1shows equalization payments by prov-ince for 1999/00. British Columbia hasreceived equalization payments in onlythree of the last 40 years: 1960/61,1961/62, and 1999/00, so for the other37 years it was a “have” province.

Q: How are equalization pay-ments determined?

A: Equalization payments are cal-culated based on the difference

between each provinces’ tax take andthe average take of the five “representa-tive” provinces: British Columbia, Sas-katchewan, Manitoba, Ontario, andQuebec. The first step in determining

equalization payments is to find the av-erage tax rate for Canada for each of therevenue sources in table 2. Next, the perperson yield for each revenue source ineach province is calculated using theseaverage tax rates. The equalization fromeach revenue source is calculated byfinding how much the average per per-

son yield in the rep-resentative provincesdiffers from the per

person yield in each province. Thesepositive and negative differences aresummed; the provinces that have a netdeficiency get equalization paymentsequal to the sum multiplied by provin-cial population. Ontario, Alberta, and inmost years, British Columbia, are oftendescribed as the “have” provinces be-cause, as a result of their relative pros-perity, they are the source for the otherprovinces’ equalization payments.

A p r i l 2 0 0 2 | 25

??

?

?

? ? &QUESTIONSANSWERS

April

Joel Emes (joele@fraserinstitute.ca) is Senior Research Economistat The Fraser Institute. He has an M.A. in Economics from SimonFraser University.

Table 1: Equalization Payments, 1999/00

Equalization Entitle-ments ($Millions)

Percent of Total EqualizationPer Capita (dollars)

NF 1,142 10.1 2,127

PE 255 2.4 1,848

NS 1,276 12.4 1,356

NB 1,178 11.3 1,560

QC 5,165 44.1 700

ON — n/a n/a

MB 1,220 11.3 1,065

SK 387 5.1 379

AB — n/a n/a

BC 94 3.2 23

Total 10,717 n/a n/a

Source: Finance Canada; calculations by the author.

Q: How much money does the fed-eral government transfer to

other levels of government?

A: In the 2001/02 fiscal year, thefederal government expects to

transfer $44.8 billion in cash and taxtransfers to the provincial and territorialgovernments (see table 3). The majortransfer programs are: equalization, ter-ritorial formula financing, and the Can-ada Health and Social Transfer (CHST).The CHST replaced Established Pro-gram Financing (EPF), and the Canada

Assistance Plan (CAP) at the beginning

of the 1996/97 fiscal year. The CHST is a

block fund to cover the federal govern-

ment’s share of spending on insured

health services, post-secondary educa-

tion, and social assistance programs.

Equalization payments are intended to

enable the provinces to provide their

residents with reasonably comparable

levels of public services at reasonably

comparable levels of taxation. These

payments are unconditional, which al-

lows the province to direct the money to

its highest spending priority. �

26 |

Table 2: Revenue Sources

Used in Determining

Equalization Payments

› Personal income taxes

› Business income revenues

› Capital tax revenues

› General and miscellaneous salestaxes

› Tobacco taxes

› Gasoline taxes

› Diesel fuel taxes

› Non-commercial vehicle licenses

› Commercial vehicle licences

› Alcoholic beverage revenues

› Hospital and medical insurancepremiums

› Race track taxes

› Forestry revenues

› New oil revenues

› Old oil revenues

› Heavy oil revenues

› Mined oil revenues

› Domestically sold natural gasrevenues

› Exported natural gas revenues

› Sales of Crown leases

› Other oil and gas revenues

› Minerals—asbestos

› Minerals—coal

› Minerals—other

› Potash revenues

› Water power rentals

› Insurance premium taxes

› Payroll taxes

› Provincial and local property taxrevenues

› Lottery revenues

› Miscellaneous provincial and localtaxes and revenues

› Shared revenues: offshore activities

› Shared revenues: preferred sharedividend

Source: Canadian Tax Foundation, Financesof the Nation, 2001, table 8.4.

Table 3: Estimated Major Federal Transfers to the Provinces and

Territories, 2001/02 (in $ millions, unless otherwise indicated)

Province General PurposeTransfers

Canada Health andSocial Transfer

TotalMajor

Transfers

TotalMajor

TransfersPer

Person(dollars)

Equaliza-tion

TerritorialFormula

Financing

CashTransfers

TaxTransfers

NF 1,074 n/a 331 261 1,549 2,879

PE 260 n/a 86 67 387 2,774

NS 1,326 n/a 590 454 2,244 2,366

NB 1,202 n/a 474 364 1,914 2,520

QC 4,719 n/a 4,638 3,566 12,367 1,666

ON 0 n/a 6,393 6,735 13,128 1,105

MB 1,207 n/a 720 554 2,369 2,053

SK 398 n/a 637 489 1,358 1,322

AB 0 n/a 1,753 1,635 3,388 1,103

BC 132 n/a 2,627 1,909 4,535 1,102

YT n/a 346 21 12 379 12,552

NT n/a 510 8 47 565 13,418

NV n/a 611 23 8 642 22,947

TOTAL 10,318 1,467 18,300 16,100 44,825 1,439

Source: Finance Canada; Canadian Tax Foundation, Finances of the Nation, 2001, table 8.1;Statistics Canada, Provincial Economic Accounts; calculations by the author.Note: Equalization associated with the CHST tax transfer is included in both CHST andEqualization. Totals have been adjusted to avoid double counting.

Q u e s t i o n s & A n s w e r s

by Sylvia LeRoy &Barry Cooper

Canadians have long been preoccu-pied with questions of sovereignty

and identity. Indeed, many Canadiansconfuse the two. But as Northrop Frye(1971) pointed out a generation ago, thefirst is a political concept, and the sec-ond is an expression of the many localand regional cultures of this country.

The political realities following the ter-rorist attacks of last September haveboth reinforced the logic of NorthAmerican security integration, and pro-voked cultural nationalists into arguingthat Canadian sovereignty depends onthe financial commitment of the federalgovernment to Canada’s so-called cul-tural industries. As Finance MinisterPaul Martin argued in defense of thenew spending priorities in December’sbudget, “In an era where the borders areessentially shrinking, when the world isbecoming smaller, one of the ways that

you manifest your sovereignty is … infact, to support your cultural indus-tries.” The new support is lavish: $120million for CBC, $200 million for theCanadian Television and Cultural Pro-duction Fund, and an additional $562million for other cultural initiatives.

The rhetoric of preserving Canadianculture sounds a lot like the rhetoric ofQuebec nationalism. It evokes thealarming matter of la survivance. Fear ofoutsiders prompted the Quebec govern-ment to pass laws restricting freedom ofchoice regarding language usage, andnow Canadian cultural protectionistsare advocating stricter Canadian con-tent rules and greater restrictions onforeign media ownership so as to protectwhat they call Canada’s “cultural sover-eignty.” But such policies confuse cul-ture and politics. They are antithetical topolitical liberty, to genuine sovereignty,and to authentic cultural expression.

An on-going House of Commons com-mittee review of Canadian broadcastingpolicy, for example, took as its mainthemes the issues of Canadian contentand cultural diversity. Unfortunately,the review is becoming a lost opportu-nity to examine the legitimacy, thecosts, and, considering the advance-ments in new technologies, even the

ability of the federal government to reg-ulate Canadian culture and public taste.

For years, Canadian content and broad-casting rules have been promoted as anindustrial development policy, and soan expression of the mercantilist orien-tation of Ottawa’s cultural mandarins(Stanbury). For instance, a few years agoan advisory committee to the HeritageMinister, Sheila Copps, proposed thatboth private broadcasters and CBC becompelled to feature Canadian moviesduring prime time. A taxpayer-endowedfund of between $150 and $200 mil-lion would be required to underwritethe production of the new featurefilms for which no discernible demandcould be detected.

About the same time, the WTO declaredthat Bill C-103, which would confiscate80 percent of the revenues from adver-tising in Canadian editions of US publi-cations, to be illegal. The governmentresponded with Bill C-55, which pro-posed to make it a criminal offence tosell ads in these “split-run” magazines.At the time, Sports Illustrated Canada,which had no Canadian competition,was the target. In the face of evidence tothe contrary, the argument was madethat if Sports Illustrated Canada contin-ued to exist, millions of Canadianadvertising dollars would end up inAmerican pockets. Then dozens ofCanadian magazines would disappear,depriving Canadians of the capacity “totell ourselves our own stories.” Withoutthis government protection, Canadianculture would disappear!

The Heritage Minister likened the wholedispute to the War of 1812, which, shesaid, “never really ended.” This was cul-tural nationalism writ very large. TheWar of 1812 claimed some 20,000 lives.No lives were even at risk over this tradedispute. Besides, the Minister of Culturegot her history wrong: the War of 1812

A p r i l 2 0 0 2 | 27

Barry Cooper is Professor of PoliticalScience at the University of Calgary andDirector of The Fraser Institute’s Albertaoffice.Sylvia LeRoy (sylvial@fraserinstitute.ca)is a research analyst in The FraserInstitute’s Calgary office.

Commanding Identity?Canadian Cultural PoliciesWithin the North AmericanPerimeter

Fraser Forum

28 |

ended with the ratification of the Treatyof Ghent on 17 February, 1815.

More recently, the CBC, which is alsosupposed to tell us our own stories, hascome under fire. Izzy Asper told theCanadian Club not too long ago that“CBC TV no longer has a constituency”even though it receives about a billiontax dollars a year. As a result, CBC is ina position to outbid private broadcasterssuch as Mr. Asper’s own CanWest Globalfrom programs that the private sectorwould otherwise bring to air. At one timepublic funding was needed because therewas simply no way for people to pay onlyfor what they wanted to watch. But, asAsper said, “CBC is attempting to func-tion in a world that no longer exists.”

Earlier this year, a Liberal member of theCommons Heritage Committee, RogerGallaway, said that CBC was a waste ofmoney because “its viewership is likechemical traces.” Even the CBC-lovingFriends of Canadian Broadcasting admitthat the share of viewers has fallen 40percent over the last 10 years. And RobertO’Reilly, a 30-year veteran of broadcastingwho once ran Radio Canada International,argues that CBC TV should be shutdown ASAP. Its audience, he said, hasdrifted away because CBC has become a“specialty service,” not a broadcasterbut a very narrowcaster. Yet it still com-mands the budget of a full-spectrumbroadcast network even though 19 outof 20 Canadians tune in elsewhere.

One way to support CBC and the spe-cialized programs it delivers has beenmentioned time and again: let thosewho want to watch it pay for it. That ishow PBS works. That is howpay-per-channel and pay-per-viewworks. There is no reason to exemptCBC and compel millions of Canadianswho don’t watch it to subsidize the pre-cious few who do.

For the defenders of cultural protection-ism, however, the same logic that wouldend publicly-financed broadcasting isthe only reason to keep it. No less anauthority than the His Excellency J.R.Saul has explained that private broad-casters are focused on profits, not con-tent. “Any attempt to make publicbroadcasting like private broadcasting,”he said, “misses thepoint of why the thingexists,” which is thecontent, the ability totell us our own stories.That CBC swallows abillion dollars a yearthus becomes anotherreason to keep it.

In short, for the cul-tural protectionists,people who don’t watchCBC clearly don’t knowwhat’s good for them-selves. That makesthem just the peoplewho should pay—so that those who doknow what’s good for themselves don’thave to.

All this interference with Canadian cul-ture has significant and adversenon-monetary consequences as well.Perhaps the greatest cost from compul-sory taxpayer support of Canadian cul-ture is that dependence on governmentgrants and subsidies stifles the creativeand imaginative potential of Canadianartists, filmmakers, writers, and publish-ers. In the December issue of PolicyOptions, for example, Robert Fulfordcriticized the déformation professionnellethat afflicts both the cultural bureau-crats empowered to distribute these mil-lions in subsidies and the applicantswho have grown to depend on them(Fulford). But tax dollars do not createculture. The reason is obvious, and itreinforces Frye’s point: culture is anexpression of local and regional experi-

ences, not a policy brokered bygovernments.

Unfortunately, policies designed to pro-tect an imaginary cultural sovereigntyhave undermined Canada’s real auton-omy. If “cultural sovereignty” is a met-aphor for anything, it means thatindividual Canadians—not the CRTC,

the Canada Council, the CBC, or themultitude of their grant-giving organswithin the Department of CanadianHeritage—are free to chose what storiesand cultural content best reflects theirown lives. Now that is something theCommons committee could sink itsteeth into.

References

Frye, Northrop (1971). The Bush Garden:Essays on the Canadian Imagination.Toronto: Anansi.

Fulford, Robert (2001). “Cultural Dreams,Policy Schemes.” Policy Options. Mon-treal: IRPP (December).

Lusztig, Michael (1999). “Canada’s LongRoad to Nowhere: Why the Circle ofCommand Liberalism Cannot BeSquared.” Canadian Journal of PoliticalScience vol. 32, no. 3. (September): 451-70.

Stanbury, W.T. (1998). Canadian ContentRegulations: The Intrusive State at Work.Fraser Forum Special Issue (August). �

C u l t u r a l P o l i c y

... tax dollars do notcreate culture ... cultureis an expression of local

and regional experiences,not a policy brokered by

governments.

by Neil Mohindra

There have been several calls for Ca-nadian securities regulators to take

steps to restore investor confidence inthe aftermath of the Enron scandal. Inthe US, the Securities and ExchangeCommission (SEC) is already movingtowards tightening the regulatory envi-ronment. It has proposed several newdisclosure rules while serving notice thatthese proposals are the beginning of a newregulatory agenda.

However, it has become increasinglyevident that market participants are fullycapable of addressing post-Enron con-cerns without any help from securitiesregulators. Investors have served noticethat inadequate financial disclosure isno longer acceptable. In the period afterEnron’s collapse, companies with ques-tionable accounting practices were pun-ished by investors who signaled theirdispleasure by selling off their holdings.

In response to investor pressure,numerous companies, including heavy-weights such as General Electric and

IBM, have committed themselves toexpanding the financial informationthey disclose. This behavior is consistentwith academic literature that questionsthe value of mandated disclosure.Because companies must competeagainst each other for investors whohave other alternatives, they have pow-erful incentives to voluntarily discloseinformation in order to lower their costof capital (Romano, 1998). Amongstother evidence, Romano cites empiricalstudies that show European firms listingin London typically comply with higherUnited Kingdom disclosure require-ments even though they are notrequired to do so under EU directives,which allow them to comply with thelower requirements of their own juris-dictions (Romano, 1998).

Evidence of changing company behav-iour is also evident from the adoption ofnew corporate policies on giving theirauditing firms consulting work. Severallarge companies, such as Unilever andWalt Disney, have announced they willnot give their auditors any more con-sulting work. In Canada, the CanadianImperial Bank of Commerce has made asimilar commitment.

In recognition of the changing attitudesof their clients, the large accounting

firms are responding to the conflict ofinterest issues. Although the previousSEC chair failed in his efforts to forceaccounting firms to spin off their con-sultancy businesses, two firms hadalready voluntarily done so before theEnron controversy. Since then, two morefirms have announced plans to do thesame. When Deloitte Touche announcedits decision, it indicated that it believedthat issues of auditor independencewere ones of perception only, but it stillfelt that splitting the company was inthe interests of its clients. The remaininglarge firm, Andersen, has announced thatit will no longer take on consulting busi-ness from its audit clients.

In Canada, accounting and auditingstandards are set by a private organiza-tion, the Canadian Institute for Char-tered Accountants (CICA). The CICAhas recently announced the formationof a sub-committee to explore whetherany shortcomings or vulnerabilities existwithin Canadian accounting standardsthat would facilitate an Enron situationin Canada.

So what steps do Canadian securities reg-ulators need to take? If anything, regula-tors should be asking themselves whethersecurities regulation can be betterdesigned to facilitate the ability of marketforces to efficiently resolve problems andissues that crop up in the market.

However, David Brown, Chair of theOntario Securities Commission (OSC),appears to have other ideas. After a recentspeech, Mr. Brown indicated that unlessthe OSC sees quick improvements, it willuse its powers under the Ontario Securi-ties Act to override accounting principlesand auditing standards (Stewart, 2002).Taking this step would clearly damageCanadian capital markets. To start with,it would mean that companies that filefinancial statements in both Ontario andother Canadian jurisdictions would face

A p r i l 2 0 0 2 | 29

Fraser Forum

The Superiority ofMarket Solutions forCapital MarketProblems

Neil Mohindra (neilm@fraserinsti-tute.ca) is a Senior Economist with TheFraser Institute specializing in financialsector regulation. He has an MBA fromMcGill University.

the cost of preparing an additional set offinancial statements. Far from beingbetter off, Canadian investors would beconfused if different rules exist in Ontariofor preparing financial statements. Cana-dian companies that list their shares onforeign capital markets may encounterdifficulties with the local regulator ifthey file financial statements that are notin accordance with generally-acceptedCanadian accounting principles.

Canadian securities regulators deservecredit for not reacting as zealously astheir US counterparts. The post-Enronperformance of equity markets suggeststhat it is unnecessary for securities regu-lators to work to restore public confi-dence. However, public confidence inCanadian markets could deteriorate ifsecurities regulators continue tothreaten regulatory actions that willdamage capital markets.

References

Canadian Institute for Chartered Accoun-tants (CICA) (2002). News Release.“Accounting Standards Oversight Coun-cil Establishes Sub-committee to Con-sider Enron Failure Implications forCanadian Standard-setting.” Feb. 22.Available electronically at http://www.cica.ca/cica/cicawebsite.nsf/public/E_02Feb22.

Deloitte Touche Tohmatsu (2002). NewsRelease. “Deloitte Touche TohmatsuAnnounces Separation of Deloitte Con-sulting.” February 6. Available electroni-cally at http://www.deloitte.com/vc/0,1029,sid=1018&cid=3658,00.html.

The Economist (2002). “When the NumbersDon’t Add Up.” February 9, p. 57.

Romano, Roberta (1998). “EmpoweringInvestors: A Market Approach to Securi-ties Regulation.” The Yale Law Journal107: 2359.

Stewart, Sinclair (2002). “OSC Vows Crack-down on Accounting Firms: EnsureAuditor Independence or We Will Act,Brown says.” Financial Post. March 8.�

by Chris Sarlo

One of the enduring claims ofthe social welfare commu-

nity is that we have in Canada (and else-where in predominantly marketeconomies), a growing “gap.” “The richare getting richer and the poor, poorer”is the common refrain. Is it true?

The evidence simply does not supportthis claim. In fact, there are compellingreasons to believe that we are gettingmore equal.

Income is frequently used as an indica-tor in studies of inequality. While this isunderstandable, especially given theeasy availability of income informationover the years, there are problems withthe interpretation and reliability ofincome. Briefly, income data is based onself-reported information from a sam-ple of households. Internal StatisticsCanada reports, reconciliation checks,and various Auditor-General reports tellus that some incomes are substantiallyunderreported and that this is a growingproblem. The numbers we see in theincome database are not necessarilytrue. As well, some incomes, even if cor-rectly reported, are not an accuratereflection of the real standard of livingof the household. This is the case withstudents (government loans and giftsfrom parents are not counted as incomebut surely make a difference in the way

students live); with those who enjoysubsidized or rent-free accommodation;and for those thousands of householdswhose incomes are negative due tofavourable business deductions andwrite-offs.

In Measuring Poverty in Canada (a Crit-ical Issues Bulletin published by TheFraser Institute in 2001) I made thepoint that the problems with incometend to result in an overstatement ofboth the amount of poverty and thedegree of inequality in the country. Ihave urged Statistics Canada to considermaking appropriate adjustments to helpCanadians get a more accurate pictureof how we are doing.

However, despite the serious and grow-ing flaws with income, there still doesnot appear to be any evidence of grow-ing income inequality in Canada. Forexample, if we examine the degree ofinequality of total household incomeusing a popular measure called the gini1

coefficient, it is essentially unchangedover the past 25 years (1973-1998). Aswell, the gini for total household con-sumption has changed only slightly(from .30 to .32) in the 29 years between1969 and 1998. This is remarkable sta-

30 |

Fraser Forum

We’re More EqualThan Ever

Chris Sarlo teaches economics atNipissing University in North Bay, ON.He is the author of Measuring Poverty inCanada, published by The FraserInstitute.

bility despite the fact that the propor-tion of single parent families hasdoubled and post-secondary participa-tion has substantially increased over thepast 30 years. The increases in transfershave surely offset, to some extent,changes in these other areas. Neverthe-less, the gap is not growing.

I tend to put significant weight on themanner in which people live and notjust their income. The comforts andconveniences that people enjoy count alot in any judgement of standard of liv-ing. And the fact is that householdappliances, devices, and conveniencesare far more prevalent today than theywere a generation ago. These items(referred to as “facilities” by StatisticsCanada) have permeated into almost allof society, where once they were thepreserve of the well-off.

The automatic dishwasher is an exam-ple. This wonderful innovation reducesthe drudgery of a major householdchore and frees up time. It makes a realdifference in the comfort and conve-nience of everyday life. In 1973, only 11percent of Canadian households owneda dishwasher. By 1998, 51 percent of

households had one. Another exampleof an item that clearly improves thequality and standard of living is air con-ditioning. Not all Canadians will needor want air conditioning, but it willmeasurably improve comfort in some ofthe hotter and more humid areas. In1973, only 7 percent of Canadian house-holds had air conditioning. By 1998,fully 33 percent had it. Colour televisionis an example of an item that enhancesthe quality and enjoyment of life. By1998, 99 percent of Canadian house-holds had at least one colour televisioncompared with only 43 percent in 1973.

The rate of acquisition of these andmany other household facilities is muchhigher for lower income than for higherincome households (Sarlo, 1998; Sarlo,2001). While we might expect this,given that lower income householdsstart from a lower base and given thathousehold facilities fall in price as mar-ket penetration increases, the factremains that there is less inequalityrelating to this aspect of the standard ofliving.

The differences in the manner of livingbetween higher and lower income

households is less than it used to be andthis “equalization” is likely to continueas other facilities come down in priceand find their way into more and morehouseholds. This surely constitutesgreater equality between Canadianhouseholds in areas that really make adifference—comfort, quality, and con-venience of living. We need to bear thisin mind next time we hear (and we willhear it!) that the gap is growing.

Note

1The gini coefficient measures the degree of

dispersion or variation between the varioushousehold units and is calibrated to bebetween zero (complete equality of income)and one (complete inequality where oneperson has all the income).

References

Sarlo, Chris (1998). Canadian Living Stan-dards. Critical Issues Bulletin. Vancouver:The Fraser Institute.

Sarlo, Chris (2001). Measuring Poverty inCanada. Critical Issues Bulletin. Vancou-ver: The Fraser Institute. �

A p r i l 2 0 0 2 | 31

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by Walter Williams

How many times have we heardpeople being applauded for “giv-

ing back”? People seem to believe that ifyou’ve been successful and made a lot ofmoney, you’re somehow obliged to giveback by making donations to this orthat cause, program, or people. Givingback is not only a nonsensical idea, buta dangerous one, as well. It reflects igno-rance about the sources of income andat the same time provides fuel for dema-gogues and charlatans.

Depending on one’s visionof the sources of income,giving back not only makesgood sense but is a moralimperative as well. Supposeincome was simply a hugepile of money that wasmeant to be distributedequally. The reason somepeople are rich and othersare not is because greedyrich people got to the pilefirst and took an unfairshare. Giving back wouldbe the “right thing” to do.

Another vision of thesources of income might be that incomeis distributed. In other words, there is adealer of dollars. In this case, the reasonwhy some people are rich and others arenot is that the dollar dealer is a racist,

sexist, or a multinationalist. Those towhom the mean dealer dealt too large ashare of dollars should give back someof their ill-gotten gains. If they refuse togive back, then it’s the job of governmentto confiscate their gains and return themto their rightful owners. In a word, theremust be a redealing of the dollars, whatsome call income redistribution.

In a free society, income is neither takennor distributed; it is earned. Income isearned by pleasing other people. Thegreater your ability to please others, the

greater is your claim on what othersproduce. This claim is represented bythe size of your income.

Suppose, for example, I mow your lawn.When I’m finished, you pay me $20. Igo to the grocer and demand, “Give me2 pounds of sirloin and a six-pack ofbeer that someone else has produced.”The grocer asks, “What did you do todeserve a claim on what someone else

produced?” I say, “I served my fellowman.” The grocer says, “Prove it.”That’s when I pull the $20 from mypocket that I earned mowing your lawn.We might think of those 20 dollars as“certificates of performance,” evidenceof service.

Free markets—along with peaceable,voluntary exchange—are morally supe-rior to other alternatives. In order tomake a claim on what others produce, Imust serve them. Contrast that principleto government handouts where a personis told, “You don’t have to serve anyone.We’ll just take what they produce andgive it to you.”

Michael Jackson is rich. So is Steve Jobsand Michael Jordan. Henry Ford wasrich, and so was Jonas Salk—but not

me. Why? I can sing. I canalso play basketball. Theproblem is that others arenot as pleased with my per-formance as they are withMichael Jackson’s orMichael Jordan’s. HenryFord became rich by makingit possible for the ordinaryperson to own a car, andJonas Salk helped eliminatea dreaded disease. You tellme what else they owe any-one. They’ve already given.

In our society, there are peo-ple who should give back.These are the thieves andsocial parasites who live

forcibly at the expense of others. They

prey on others. Some do it privately

through theft, fraud, and robbery. Oth-

ers use the political mechanism whereby

government enriches them at the

expense of others. If giving back means

anything, it should apply to thieves and

social parasites, not to those who have

become wealthy by serving us. �

32 |

Giving Back

Walter Williams is John M. OlinDistinguished Scholar at George MasonUniversity in Fairfax, Virginia, and is asyndicated columnist. He has a Ph.D. inEconomics from the University ofCalifornia at Los Angeles.

In order to make a claim onwhat others produce, I must

serve them. Contrast thatprinciple to government

handouts where a person istold, “You don’t have to

serve anyone...”

Fraser Forum