Alex Paterson

Think Tank Round Up Vol. 6: May 2, 2013

May 2, 2013

In the past two weeks the world learned that austerity might not be all it’s cracked up to be. The Reinhart-Rogoff ‘affair’ has occupied a lot of airtime (if you haven’t caught up, here’s a good primer from The New Yorker), with good cause. Governments across the developed world must make hard choices as we continue on a shaky road to recovery: it is essential to ensure that these choices are based on the best available information.

In this volume of the think-tank round-up, we have plenty of examples of governments in Canada, the U.S. and Europe grappling with very serious policy issues.

Before we dive in though, take the time to register for our final Canada We Want in 2020 speaker series event: Confronting the crisis in public health on May 28. We have an excellent line-up of panelists that includes Alex Munter of CHEO, Alexis Williams of Loblaws, and Melody Barnes, current Vice-Provost of NYU and former White House Director of Domestic Policy under President Barack Obama. Don’t miss it!

Carbon and the environment

In January 2013, the Ontario Ministry of the Environment published Greenhouse Gas Emissions Reductions in Ontario: a Discussion Paper to inform its consultation on the design of a GHG reduction program. Two prominent Canadian environmental research centers, the International Institute for Sustainable Development (IISD) and Sustainable Prosperity (SP), also made public their contribution to the consultation process.

IISD notes that a cap-and-trade system can be effective if well-designed. To achieve this, IISD points to a few key features. First, it must be an overarching scheme that is inclusive of all sectors. Second, permits must be allocated according to cost outcomes. Finally, the Ontario cap-and-trade system should be designed to align with the recently-linked California and Québec cap-and-trade system.

In contrast, Sustainable Prosperity – a co-presenter of the dinner following our recent public panel on selling carbon pricing to Canadians – argues in favor of carbon taxation. SP is clearly disappointed that this option is not on the table. SP’s criteria for a successful scheme are that it must be: comprehensive in its coverage (no exemptions); simple and readily implemented; transparent and accountable; and, finally, complemented by regulations and incentives when a price signal alone is not sufficient. SP also warns against the free allocation of permits in a cap-and-trade system, to avoid encountering problems such as those that have plagued the European Emissions Trading System (ETS, RIP?).

Also at a provincial level, the Pembina Institute’s Simon Dyer published a report entitled Strengthening Alberta’s greenhouse gas regulations. The author welcomes the proposed-40/40 plan while cautioning that even this will not be sufficient to meet Canada’s 2020 Copenhagen commitments. His proposal is to reach the $40/tonne tax level by 2014, but to build on this with a $10 per annum increase so that the taxation rate would reach $100/tonne by 2020. This would generate $1.4 billion per year in revenues for Alberta’s Climate Change and Emissions Management Corporation (Eric Newell, the chair of CCEMC was a panelist in our most recent event, watch it here). These higher targets would help improve the oilsands’ image and potentially help overcome challenges to exporting oilsands products to the U.S. and Europe.

In international news, The World Bank reports that current trends are leading us to a 4 degree Celsius world by 2100 unless drastic action is taken. In response, the Center for American Progress presented New ideas for harnessing global markets to confront climate change, arguing that although global carbon markets have played an important role in the reduction of GHGs, they are still flawed. The authors put forward eight recommendations for the international community, one of the most interesting of which is that consumers should be empowered through social media and online marketing. CAP argues that tools such as Kickstarter can be harnessed to give consumers and individuals greater power in the fight against climate change. Another recommendation calls for learning-by-doing: scaling up the market to cover entire economic sectors and adjusting as we go, rather than trying to design the perfect system at the outset.

Income inequality

There has been much discussion in the United States about the “hollowing out of the middle-class.” If we accept that this is occurring, which policies might help counter this trend? CAP identifies six policies that it claims would not cost the taxpayer a dime, but would help the middle-class. They are to:

  1. Increase the minimum wage
  2. Make saving for retirement easier, cheaper, and more secure
  3. Lower monthly housing costs by providing homeowners with principal forgiveness
  4. Let all workers earn paid sick days
  5. Ensure that workers who want to form a union are able to do so
  6. Require colleges to provide consumer information such as likelihood of graduating, finding employment and paying off student debt via college scorecards.

CAP argues that these measures can be accomplished by changing regulations and labour laws. Although this may be sufficient to achieve the majority of these policies, it seems unlikely that policy #2 can be implemented without incurring important administrative costs on the part of government.

The Center for Economic and Policy Research produced a list of its own in Making Jobs Good. Schmidt and Jones examine how the following factors impact whether a job is “good” or “bad”: universal healthcare, universal retirement system, increase in college attainment, increase in unionization and gender pay equity. The main argument is that reducing the amount of bad jobs is more easily done than creating good jobs. However, a combination of policy actions on gender equity and unionization rates can have a positive effect.

The report shows just how much of an impact gender can have on earnings. If both genders were to receive the same pay for the same level of education, there would be no gender discrepancy in who holds the “good jobs”. Underpayment of women makes their job fall into the “bad job” category while men with similar positions have “good jobs” due to higher pay. Another interesting finding is that increasing unionization causes a greater improvement in the quality of jobs than increasing levels of college attainment.

Although President Obama has stated that income inequality is the defining issue of our time, this sentiment does not seem to be reflected in polling results. The Brookings Institution’s How much do Americans care about income inequality? argues that inequality is not an issue for U.S. voters. Even when individuals are given “tutorials” on the issue, their opinion on the importance of income inequality does not change. This looks to be at odds with attitudes here in Canada where polling found that a majority of Canadians (77%) deem income inequality a serious problem.

Productivity

Policy makers have long been concerned that Canada’s patent registration growth is lower than that in other developed countries. The C.D. Howe Institute produced a report exploring how reforming the Canadian tax system could help improve our productivity (Improving the Tax Treatment of Intellectual Property Income in Canada). It proposes what it calls an “Innovation box” which would give businesses tax breaks linked to the adoption, commercialization and exploitation of the output of research and development (R&D) rather than for the R&D in itself.

Healthcare

Briefly, the Fraser Institute argues that Canada has much to learn from the Japanese healthcare system. Canada spends 87% more on healthcare than Japan in terms of age-adjusted GDP – an interesting indicator in its own right that accounts for the higher usage of health services by older citizens. And yet, the report points to a number of indicators where Canada has worse health outcomes. The report, Health Care Lessons from Japan, authored by Nadeem Esmail, makes some fairly bold recommendations for Canada’s health system based on Japan’s model – not all of which we think should be handled lightly. Key features of the Japanese system that are highlighted as helping to reduce costs is the greater use of progressive cost sharing, as determined by income levels as well as greater reliance on federally regulated private health insurers. In fact, Japan is home to some 3,500 health insurers – a staggering amount.

The report is right to point out that instituting many of these changes would invalidate key aspects of The Canada Health Act. We would take it a step further: it would fundamentally alter our approach to health and healthcare delivery in this country. Are we ready to have that kind of conversation? The federal government seems quite pleased to punt our health accord conversations down the road – so we suspect we already know the answer.

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