Presentation Paper: Globalization and Progressive Social Policy

June 18, 2001

Paper by Andrew Jackson, Director of Research at the CCSD
for Presentation to the Tenth Biennial Conference on Canadian Social Welfare Policy, Calgary

Summary

It has been argued from both sides of the political spectrum that neo-liberal globalization sets in train irresistible pressures to the 'downward harmonization' of social standards, and forces countries to conform more and more closely to the minimal social-welfare/high-inequality US model. Downward pressures driven by international competition do exist, particularly with respect to progressive taxes and redistributive income transfers. However, progressive social policy sustains not just social justice but also contributes to good economic performance. In practice, there is surprisingly little evidence of downward harmonization of social policy or a generalized shift to greater after tax income inequality across the advanced industrial (OECD) countries. While inequality has increased in the US and Canada, some European countries have been able to maintain high levels of social welfare and relatively equal societies while also participating successfully in the 'new global economy.' That being said, key provisions in international trade and investment agreements may increasingly constrain progressive social policy. There is a clear need to support progressive social policy through changes to the dynamic of neo-liberal globalization.

Introduction

In the aftermath of Seattle and Quebec City, it is clear that the ideology of neo liberal globalization – what the French call la pensée unique – is facing a major challenge. The so-called anti-globalization movement is hardly monolithic, but what unites its disparate elements is a view that globalization as presently constructed is fundamentally flawed, and that it is possible and indeed necessary to build a different kind of global order. Critics of neo-liberal globalization rightly point to the failure to put international development, the environment and human rights at the forefront of the global agenda. They rightly protest against key defining features of the current order: large and growing inequalities between and within countries, the marginalization of the poor, the commodification of virtually all areas of life; and, above all, the growing power of unaccountable trans-national corporations vis-à-vis citizens and their democratically elected governments.

That said, it is important to draw a basic distinction between globalization in the sense of increased international economic integration with respect to trade and investment, and globalization as a neo-liberal ideology which promotes and celebrates the rise of the global market and the retreat of the democratic state. The fundamental argument I want to make is that the space for democratic choice and the space for progressive social policy in at least the advanced capitalist countries such as Canada is much greater than both the advocates and critics of neo-liberal globalization often allow. Right-wing politicians argue that we have to slash taxes and social spending, weaken the labour movement and commodify and marketize health care and education in order to attract investment and successfully compete in the new and more integrated North American and global environment. The progressive argument should be that they are using globalization to promote their own agenda, and that the basic logic of their argument is wrong.

1. Downward Harmonization? An Overview of the Evidence

To be sure, there are indeed downward, competitive-driven pressures on progressive social policy as embodied in redistributive tax/transfer systems and the non market sector, and it is certainly a challenge to maintain and enhance Canadian distinctiveness when we are so closely economically tied to the US. But progressive social policy promotes higher productivity as well as social justice. If there is anything at all to the argument that so-called human capital and social capital are a fundamentally important part of any economy, and a still more important part of a knowledge based economy, then progressive social policy promotes economic efficiency as well as social equity (Jackson, 2000a; Osberg, 1995). The skills and abilities of people and the quality of their relations to one another are a fundamentally important part of any successful economy, and highly unequal neo-liberal societies such as the US are economically inefficient as well as socially unjust.

Consider the logic of the argument that, in a globally integrated economy, production and mobile investment capital will tend to flow to those countries where investors and corporations find low wages, low taxes, and low legislated social and environmental standards, setting in train a competitive race to the bottom. This is true to a degree, but, despite all of the rhetoric of globalization, many areas of the contemporary economy, particularly the services sector, are not highly exposed to international competition at all. Low wage McJobs are better explained by high youth unemployment and low minimum wages than by the forces of global competition. It is certainly true that there is intense competition in most parts of the traded goods sector, and that some manufacturing production has shifted to very low-wage/low-social-standard export enclaves such as the maquildoras of Mexico. This has indeed strengthened the bargaining power of trans-national corporations and is one factor behind the increased earnings inequality found in some countries, notably the US. That said, North-South trade in the global economy is broadly balanced – albeit with a higher labour content in goods manufactured in the South – and the extent of North-South trade is still hugely eclipsed by trade among the advanced capitalist countries. The same is true of investment flows. In the case of Canada at least, globalization is pre-eminently about greater economic integration with the US rather than about increased openness to the developing world, and trade and investment flows with Mexico and Latin America are very small.

The three major economic blocs – North America, the European Union and Japan plus developing Asia – the so-called triad – trade and invest much more within and between each other than with the developing world. If economic success in a world of mobile and powerful trans-national capital will indeed now go to countries with low tax rates, and flexible – cheap – labour markets, then the US should be winning hands down, and the still relatively generous welfare states of continental Europe should be in terminal decline. The consistent policy message of the right-wing in Canada has indeed been that if we want to experience the US new economy miracle, then we will have to adopt the US social model.

But, in point of fact, the evidence for OECD countries clearly shows that there was no correlation between low taxes and high economic growth, and no correlation between high income inequality and high economic growth in the 1980s and 1990s (Jackson 2000 a,b; Arjona, 2001). To be sure, the US turned in a good growth performance in the second half of the 1990s and achieved very low unemployment, but so did some countries with relatively high taxes, strong labour movements and relatively generous welfare states, notably Denmark and the Netherlands (Auer, 2000). If the US grew faster in the 1990s than much of continental Europe and Canada, it was more because of low interest rates than because of regressive social policies. Unlike European central banks, Alan Greenspan allowed the expansion to continue even as unemployment fell below levels which had once been feared as too inflationary. New technology helped a lot, but productivity growth in Europe has generally at least matched if not exceeded US levels.

Certainly Canada turned in a dismal economic performance in the 1990s compared to the US, but we hardly need find the explanation in our still somewhat more generous welfare state. Sky-high interest rates pushed us into a much deeper recession than the US, and drove up the public debt, in turn prompting much deeper, growth-depressing public spending cuts than in the US.

Despite all the fears of downward harmonization to a minimalist welfare state and deregulated labour markets caused by globalization, the evidence is actually hard to find. OECD data clearly show that public social spending has increased rather than fallen as a share of GDP, with the OECD average rising from 19.3% in 1980 to 22.1% in 1990, to 23.5% in 1997 (Arjona, 2001). In almost all countries, social spending has increased at least in line with GDP growth, though Canada in recent years has been a major exception. Moreover, it is not true to say that there has been a generalized shift to greater income inequality in OECD countries in the 1980s and 1990s. There has indeed been a trend towards greater market income inequality arising from the impacts of high unemployment and more precarious jobs on low-income households, and from the growing market income share of the most affluent. Income inequality caused by differences in levels of employment and unemployment varies a great deal between countries, but there has been a significant overall tendency for the market income share of the most affluent part of the working age population to rise somewhat at the expense of the middle and the bottom. This rising market income share of the elite can be linked to globalisation to some degree. However, when it comes to the distribution of income after taxes and transfers, there has been no general shift towards greater inequality or income polarization, suggesting that many countries have actually redistributed market income more in the 1980s and 1990s than in the heyday of the welfare state (Forster, 2000). If there is a trend, it seems to be towards increased income inequality in those countries that were most unequal to begin with because of deregulated labour markets and a low level of social spending. After tax/transfer income inequality has certainly grown from already extreme levels in the US, has risen sharply in the UK, and has begun to rise in Canada since the mid 1990s. But there has been little or no increase in after tax income inequality in already relatively high-equality countries such as Denmark, the Netherlands and Germany (Jackson, 2000a).

2. Globalization and the Persistence of Differences in Social Welfare

The evidence is also clear that quite different forms of capitalism continue to exist despite all of the talk of globalization-driven convergence to a minimalist welfare model. I illustrate this in Table 1, which provides some key economic and social indicators for Canada, the US, and Denmark. The latter has the highest tax burden in the OECD, and currently spends almost 50 cents directly on the public sector – that is, on health, education, housing, recreation, child and elder care, community services and so on (everything excluding transfers) – for every dollar of private spending, double the level in the US. Public social spending is 30% of GDP, almost double the US and Canadian level. More than 2 in 3 workers are covered by collective agreements, almost double the Canadian level, which is in turn almost double the US level. Denmark is a startlingly more egalitarian society than the US or Canada. The starting point of the top 10% of earners is only a bit more than twice as much as the cut-off for the bottom 10%, compared to more than 4 times as much in the US, and slightly less in Canada. Less than 1 in 10 working women are low-paid (earning less than two-thirds the median wage) compared to more than 1 in 3 in Canada and the US. The after tax incomes of the top 10% start at only about 3 times more than the cut-off for the bottom 10% compared to more than 6 times higher in the US, and about 4 times higher in Canada. Child poverty is negligible.

Late 1990s Statistics Compared
  US Canada Denmark Note
GDP per capita at PPP 100 81 87 1998
Growth of GDP per Capita 1.70% 1.00% 2.30% Annual, 1990-98
Men, 45 hrs.+ 26% 22% 15% Long Working Time
Taxes as % GDP 28.50% 36.80% 52.20% 1998
Ratio Public/Private Spending 0.24 0.36 0.48 Transfers Not Included
Public Social Spending 16% 17% 30% % GDP
Collective Bargaining 18% 36% 69% % Workers Covered
Male Earnings D10/D1 4.3 3.8 2.2 Bottom of D10/Top D1
Low-Paid Women 32.50% 34.30% 8.00% <2/3 median wage
Income D10/D1 6.44 3.93 2.86 After tax; bottom of D10/top of D1
Child Poverty 22.70% 13.90% 4.00% <1/2 median
Sources: See Jackson 2000a

While Denmark has a dollar standard of living which is 87% of the US level, if GDP per person were to be adjusted for shorter hours worked by the full-time employed and for an equitable distribution of income, then Denmark would win hands down. After all, the modest income advantage of being an American only goes to the top layer who appropriate a disproportionate share of total national income. This key fact is often glossed over in Canada, leaving many Canadians with the impression that middle-class Americans are better off. In fact, even with per capita GDP in Canada adjusted for living costs now being about 20% lower than in the US and income taxes being somewhat higher, Statistics Canada has calculated that the bottom 25% of Canadian households have after tax incomes which are much higher than the bottom 25% in the US, and that the median US household is only 7% better off than the median Canadian household. Moreover, that US household will have to spend 11% of after tax income on health care, compared to 4.6% in Canada, wiping out the dollar advantage (Wolfson and Murphy, 2000). Only the top 20% or so of Canadians would gain by moving to the low-tax/low-social-spending US, assuming that they wanted to be top dogs in a dog eat dog society.

Turning back to Denmark, there was no increase in after tax/transfer inequality in the 1990s, no decline in unionization, expansion rather than shrinkage of the public sector, and reform rather than retrenchment of the welfare state. Far from becoming an economic basket case, doomed to failure and stagnation by its quaint and outmoded attachment to out-of-date egalitarian goals, Denmark turned in an economic growth performance at least as good as the US in the 1990s, and currently has an unemployment rate of 5%, almost as low as the US. More than 75% of the working age population have jobs, even higher than in the US. It may not be easy, but it is certainly possible to reconcile a high level of social welfare with growth and job creation in the new world order.

Not to be too simplistic, it has to be conceded that, while some other relatively equal countries such as the Netherlands did well in the 1990s, others, such as Sweden, did not fare so well. The evidence shows that there is no link from high taxes and high social spending to lower growth, not that equality and progressive social policy lead to stronger growth. Further, there were some modest signs of downward harmonization in Denmark and other social democratic countries in the 1990s. Corporate tax rates have been lowered, along with the highest personal tax rates. The overall tax burden in OECD countries has not been harmonized down, but the mix of taxes has to some degree shifted to more regressive taxes, such as payroll and sales taxes, as corporations and the affluent have indeed used the threat of packing their bags to demand cuts for themselves. However, from the standpoint of achieving equality, a highly progressive tax system is less important than having an equitable distribution of wage income, and a high level of spending on income transfers and on public services. Even Swedish social democracy in its heyday depended very little on steeply progressive taxes to achieve income equality.

Also not to be simplistic, it has to be conceded that in Denmark, as in the Netherlands and other successful smaller European countries, there were some significant reforms to social security in the 1990s (Auer, 2000). So-called 'passive' transfers to the unemployed were reduced – though not very significantly – and the focus was placed very much on strategies to integrate the working age unemployed and marginalised into the job market. Some have seen this as an accommodation of social welfare objectives to the need for global competitiveness. But the rejigging of social security to meet labour market needs took place in a very different context from similar so-called reforms in Canada, the US and Britain. Denmark as well as the Netherlands achieved strong gains in employment in labour markets where wages are still relatively equal and where low pay is rare. While social security reform in the US has pushed many from welfare into very low-wage work, reform in parts of Europe has provided real ladders of opportunity. While the US and Canada used the stick of welfare and E.I. cuts, Denmark and the Netherlands have maintained generous unemployment benefits while also investing heavily in training. Denmark and Sweden spend more than 6% of GDP on active labour market policies, compared to 1.2% in Canada and just 0.8% in the US (Arjona, 2001).

3. Negative Pressures from Globalization on Progressive Social Policy

The three key mechanisms of progressive social policy which promote greater equality of conditions and life chances in capitalist societies are labour market policies to promote high employment and a reasonably equal distribution of wage income; tax and transfer policies to redistribute market income; and the establishment of a large non market sector to provide some services on the basis of citizenship rather than ability to pay. Advocates of neo liberal globalization tend to believe that each of these mechanisms inhibit economic efficiency and competitiveness, and will thus have to be substantially modified in the new global order, while many critics of globalization who support these equality-producing policies believe that they are subject to erosion in a world of mobile capital.

Collective bargaining and high minimum labour standards unambiguously produce greater wage equality but are seen by most corporations as a source of costly 'rigidities'. North American corporations seemingly prefer, all things being equal, to produce and invest in low labour standard US states and in Mexico, resulting in downward pressures on more progressive Canadian policies. However, studies do show that unionization and high labour standards tend to go hand in hand with higher productivity and can facilitate workplace change (Auer, 2000; Jackson , 2000a). Canada's unionization rate has not declined significantly under the FTA and NAFTA, though labour rights and standards have probably been harmonized down to some degree.

The tendency of globalization to harmonize down corporate and top income tax rates has been noted, and there are probably downward pressures on income transfers to at least the working age population. E.I. and social assistance cuts in Canada in the 1990s were driven to some degree by fiscal, cost-cutting considerations, but also by the view that 'generous' social provision discourages acceptance of low-wage work, thus artificially increasing wages and undermining competitiveness. The Department of Finance and the OECD have both argued that E.I. and social assistance cuts were needed to help secure labour market flexibility and low inflation. Low inflation as well as balanced budgets are certainly at a premium in a world of hyper mobile financial capital (Jackson 2000c). It can be noted that the countries which have maintained progressive social policies have tended to insulate themselves against financial market pressures by being impeccably orthodox when it has come to balancing budgets and keeping inflation low and stable.

While increased international competition likely sets in train pressures to cut redistributive income transfers, it is less clear why the decision to maintain a large non market social sector would be directly affected. Canada and the US and indeed all advanced industrial countries spend approximately the same share of GDP on social protection, broadly defined (Arjona, 2001; Larsson, 1998). The major difference is in the public/private split of these costs. The US spends 7.1% of GDP on private health care compared to 2.7% in Canada, and as noted above, health care consumes 11.2% of US after tax family budgets compared to 4.6% in Canada. A greater focus on the market does not reduce total social protection costs, but rather shifts them onto households, while greatly increasing inequality of access to services. (For example, 8 out of 10 low-income Canadians (bottom quintile) visit a doctor annually, compared to 6 in 10 in the US.) (Wolfson, 2000.) There is strong evidence that public provision of health care is more efficient in narrow cost terms than private delivery, and the same could be argued of other services and programs, from education to pensions. While parts of the corporate sector would clearly benefit directly from a shift from public to private delivery, it is far from clear that this would promote increased international competitiveness of the corporate sector as a whole.

To summarize, there are indeed some plausible links from globalization in the sense of intensified international competition for production and investment to 'downward harmonization' of some equality-producing social policies. However, as has been argued, at least some high-equality countries were not economically marginalised in the 1990s, have not harmonized down, and have not become more unequal. This suggests that there are offsetting positive linkages from progressive social policies to good economic performance. Economists and others have, in fact, increasingly drawn the connection from high levels of relative income equality and high levels of public provision to higher 'human capital'.

4. Positive Links from Progressive Social Policy to Economic Performance

One key linkage from equality to so-called human capital is in the area of health. Research has shown that, beyond a certain level of national income, the positive link between rising average income and health disappears, such that the modest differences in average income between advanced industrial countries have no impact on population health. At the same time, there is a gradient of health status based on income in all countries, with higher-income groups enjoying better health and longer lives, and lower income groups dying relatively earlier and enjoying fewer years of disability-free health. The gradient which links health status to income varies significantly between different countries, and is much flatter where income is most equally distributed. In short, what matters for health in advanced industrial countries is not the absolute level of income at any point of the income distribution, but how equally income is distributed. This can be explained by the negative psychological and social impacts of inequality on the less well-off, and by the greater exposure of lower income groups to health risks at work, in the home and in the community. Further, high-equality societies almost always have a high level of public involvement in health care, which is largely delivered outside of the market mechanism and thus serves all income groups more or less equally (Ross, 2000).

Consider the example of Canada and the United States. It is common to note that Medicare is a competitive advantage for Canada in the sense that companies do not have to pay as large a share of employee health care costs. But it is less common to note that higher income equality in Canada combined with a much less marketised and commodified health care system have resulted in significantly higher levels of population health. The most recent data from the World Health Organization show that Canadians can, on average, expect to live for 79 years, 72 years of which will be lived free of disability and in good health. In the US, both average life expectancy and disability-adjusted life expectancy at birth are 2 years less than in Canada, and the US ranks 24th in the world by the latter measure, while Canada ranks 12th.

Research by Michael Wolfson of Statistics Canada and others has linked mortality to income inequality at the state and provincial level and at the level of large urban areas (Ross, 2000). There is a clear link between the two, with annual mortality among working age adults falling from 675 per 100,000 in the most unequal US states, to 400 or less per 100,000 in the most equal US states and in the Canadian provinces, all of which are at the high-equality end of the North American spectrum. Based on the calculated link from income inequality to mortality, it can be said that if the US had the same income distribution as Canada, close to 100,000 fewer working age Americans would die each year. This in turn translates into markedly higher incidence in the US of a range of chronic conditions which lead to disability as well as premature death.

As a further illustration, consider infant mortality. While very low in advanced industrial countries, the infant mortality rate is a good proxy measure for the likelihood that children will lead long and healthy lives. In Canada, there is a clear gradient, with infant mortality rising from about 4 per 1,000 births for the highest income 20% of households, to more than 6 for the lowest income 20%. The average infant mortality rate in high-equality Sweden is 4 per 1,000, the same as that for the highest income 20% in Canada, while the average rate in the US is 8 deaths per 1,000, much higher than for even the poorest 20% in Canada (Statistics Canada, 1999).

A second key dimension of so-called human capital is literacy and numeracy. Again, research shows that countries differ not just in terms of average literacy and numeracy levels, but also in terms of the distribution of literacy and numeracy skills within the population. As with health, there is a much flatter gradient of literacy and numeracy levels in more egalitarian societies. Take the prose literacy level of young adults, as measured in a comparable way across countries in the International Adult Literacy Survey. As shown in the Chart, the mean literacy rate is higher in Sweden than in Canada, which is in turn slightly higher than the US. The gap in scores is very small for the top 25% in each of the three countries, with Sweden very slightly ahead, but the gap is much larger between the lower achievers. If we take the bottom 25% and particularly the bottom 5%, Sweden does far better, and Canada does much better than the US. Other research based on this survey has shown that the link from parental socio-economic status to literacy and numeracy achievement is much weaker in the high-equality Scandinavian and Benelux countries than in Canada, which in turn equalizes achievement levels more than the US. Further, there is a strong and unsurprising linkage from literacy and numeracy levels to individual success in the labour market.

 

globinc
  Sweden Canada US
5th 232.1 179.8 124.8
25th 291.7 255.2 241.3
Mean 313.5 287.3 275.4
75th 344.6 326.2 322.4
95th 381.3 365.6 364.5

What can we conclude from these gradients of 'human capital' by income? First, there is overwhelming evidence that high income equality translates into much broader equality of life chances. A child born into a low-income family in Sweden, Denmark or the Netherlands has a better chance of lifetime good health and a better chance of acquiring the skills needed to obtain a good education and rewarding employment than a comparable child in Canada, and a Canadian child has a better chance than one born in the US. While the differences are most significant for those at the bottom, they are probably not insignificant for middle-class children. These differences are plausibly linked to both more equal income distribution, which tends to equalize conditions, opportunities and life chances by equalizing market consumption, and to a high level of quality public services. Health care for low-income Canadians is superior to that in the US and, in the case of literacy and numeracy, we can reasonably believe that schools in low-income neighbourhoods in Canada are of better quality than schools in low-income neighbourhoods in the US.

For those of us concerned with social welfare and social justice, the case for greater income equality and for a larger public sector is confirmed. But what about economic efficiency and international competitiveness in the new global economy? It could, perhaps, be argued that what counts in the new global economy is the skills, talents and capacities of the top 20%, or of a still narrower elite, and that the health, skills and 'human capital' of the rest of society are of little account. But this is surely absurd, and economists of almost all persuasions are all but unanimous on the need to invest in the 'human capital' of the entire population to achieve success in the new, 'knowledge-based' global economy.

To summarize the argument to this point, progressive social policy may be subject to some downward harmonization pressures due to increased international integration and competition, but such pressures are commonly exaggerated. Compelling signs of convergence to a minimalist welfare model are few and far between. This likely arises from the fact that any negative economic impacts of equality-producing policies are offset by the economic benefits of greater equality of conditions and life chances.

5. Pressures to Convergence From Trade and Investment Agreements

All that said, there is an important actual and potential threat to progressive social policy which is posed by international trade and investment agreements such as the North American Free Trade Agreement (NAFTA), and the still evolving General Agreement on Trade in Services (GATS). These threaten the continued capacity of democratic governments to deliver social welfare and social services outside of the market and to maintain a 'decommodified' sphere of social citizenship (Sinclair, 2000; Jackson and Sanger, 1999).

Trade agreements such as the GATT used to be almost exclusively about trade in goods, and had few if any implications for the boundary between the market and the state outside of industrial and economic development policy. But new trade and investment agreements such as NAFTA and GATS intrude much more deeply into the sphere for democratic choice by restricting the ability of governments to maintain a non market sector and to change the boundaries between the market and non market sectors. Pushed actively by service providing trans-national corporations, the fundamental premise of these agreements is that commercial providers should, subject to certain exemptions, have the right to establish in national markets, and be given the same treatment as domestic providers (national treatment). These agreements impose defined limits on the power of governments to regulate and intervene and to maintain spaces outside of the market, backed up by binding multilateral rules.

NAFTA trod new ground by codifying investment rights and gingerly extending trade liberalization rules from goods to services, and by creating (through Chapter 11) a means through which foreign corporations could directly challenge government decisions outside of domestic legal processes (through 'investor – state' dispute settlement as opposed to GATT provisions for the resolution of 'state to state' disputes). While GATS does not have investor-state provisions, it does envisage setting up domestic tribunals to which trans-national corporations could turn for redress. Agreements have increasingly effective enforcement mechanisms, usually based on narrow constructions of rules arrived at in private sessions of trade specialists.

While the underlying presumption of these agreements is that all sectors should be liberalized and opened up to trans-national corporations and investors, exemptions are provided for in general terms and under the specific terms through which states adhere to particular agreements. In the case of GATS, the general exemption for public services is very narrow. Only services “provided in the exercise of governmental authority” are exempt in principle, and this is narrowly defined to make it clear that services provided by governments on a commercial basis, or in competition with private suppliers, are included. Under NAFTA, services such as health, education, child care, income insurance and welfare services are excluded “to the extent that they are social services established or maintained for a public purpose”. The meaning of this phrase has never been definitively established, but the position of the US government has been that, like GATS, this excludes only monopoly government services and does not exclude government services delivered in competition with the private sector.

Neither the GATS nor NAFTA general exemption are clear on the potential application of trade and investment rules to areas of mixed public, private and not-for-profit delivery. Yet health care in Canada is a mixed system, with not-for-profit hospitals and private doctors and private laboratories delivering services paid for by governments. The same can be said increasingly of education and skills training, of child care and of many community services, such as home care and elder care. The Canadian social welfare system is a patchwork of public services, private services contracted for by governments or delivered in competition with government services, and not-for-profit services provided on contract to governments or provided with the support of government grants and subsidies. While researchers have only begun to map the not-for-profit sector, it is clear that there is a range of means through which government support is provided, from grants and contributions, to subsidies, to exclusive contracts, to contracts awarded on the basis of competitive bidding (e.g. home care services in Ontario), to preferential taxation (e.g. the GST exemption for charities).

The present, commendable, position of the Government of Canada is that health and social services should be excluded from trade and investment agreements, albeit on the still untested NAFTA model. However, expert legal opinion holds that, once privatization has advanced beyond a minimal stage, the NAFTA-type exemption is likely no longer adequate. For example, if the Government of Ontario or Alberta begins to seriously experiment with delivery of public health care through private hospitals, it will be difficult if not impossible for future governments to return to a not-for-profit system without paying compensation (under Chapter 11) to US health corporations which had entered the Canadian market. Further, US health corporations, once established, could potentially claim so-called national treatment in a range of areas.

The GATS negotiations now actively underway raise a number of complex and controversial issues. Under NAFTA, subsidies are exempt, which means that governments can provide 'discriminatory' subsidies to not-for-profit providers of home or elder care without fear that US companies operating here could claim the same treatment. However, a round of subsidies negotiations is taking place under the GATS, and it has been agreed in principle (as in the derailed Multilateral Agreement on Investment) that national treatment (i.e. non discrimination) should apply. At present, government procurement of services is not covered, so governments can preferentially contract with not-for-profit providers of health and welfare services. But a round of procurement talks is planned under the GATS, and it has been argued that the current exemption is narrow and applies only to procurement for government needs as opposed to the needs of citizens. Favourable tax treatment for not-for-profit providers may be challenged in future GATS talks.

The central point is that privatization and the erosion of the public and not-for-profit sectors are already being promoted through binding trade and investment agreements to some degree, and that the pressures are mounting. Unless the Canadian government is very careful indeed, and has the continued political will to resist, globalization in the sense of binding international trade and investment rules could indeed subvert progressive social welfare institutions and policies.

6. Some Policy Implications

Globalization in the sense of increased international trade and investment flows is almost certain to continue, and Canada has been for many years, is now, and will for the foreseeable future remain part of a highly integrated North American economy. There will be continuing pressures from trans-national corporations and investors to conform more and more closely to the low-tax/low-social-standard US model in order to maintain competitiveness, and some downward pressures as and when the inclusion of Mexico in NAFTA is extended to the Americas as a whole. While these pressures can be resisted, and while there are offsetting benefits from higher standards of social welfare, we should at least consider how globalization and North American integration can be made less of a threat.

Europe offers at least an outline of a different model of regional economic integration. The social dimension of the European Union can be exaggerated, but the fact remains that the EU does set some minimum social standards, including regulation of health and safety conditions and working time, and a requirement for trans-national corporations to establish works councils. Diversity of social policy is respected and indeed still paramount, but some agreed social policy objectives have been set for the EU as a whole, including a commitment to training or job placement for all unemployed young people. Significant income transfers have helped lower income EU members and lower income regions, shrinking income differences between and within countries. The EU has begun to talk about policies to protect the tax base for social programs, and has recently obliged Ireland to rein in excessive corporate tax breaks. Social policy at the EU level helps explain why downward harmonization has been limited, and why advocates of minimalist social welfare policy, such as Margaret Thatcher, have viewed the EU projet de société with such distaste.

The EU model as such is hardly applicable to North America, not least given the huge weight of the US in NAFTA and the realities of US politics, but it is not without its lessons. It is possible to imagine meaningful NAFTA and international agreements on labour and social rights and standards which would go significantly beyond the existing, largely ineffective, NAFTA side deals on labour and environment to set a meaningful and enforceable floor which governments would have to respect. Indeed the opponents of the FTAA process have developed some Alternatives for the Americas along these lines, including proposals for a social charter (CCPA, 1999). Global action against one-sided trade and investment deals is simultaneously a global discussion of global alternatives. While one pole of the so-called anti globalization movement does view international economic integration per se as problematic, another pole sees room for progress by making sure there is a social dimension to the globalization process. It seems worth investing time and energy in a discussion among social activists in the US, Canada and the Americas as a whole about what kinds of social institutions might shape a different and more progressive integration process.

As presently constructed, globalization has been a process limiting the powers of governments to intervene and shape the market, not least through the structural adjustment programs imposed by the IMF and the World Bank on developing countries and international trade and investment agreements. Globalization as a political process has thus been more or less synonymous with economic liberalization. With rather few exceptions, the rise of the new global economy has not been twinned with the creation of effective new international institutions to shape the market so as to produce more equal opportunities and outcomes, and to preserve the space for progressive social policies at a national level. Yet some very embryonic institutions exist which could be built upon. For example, the OECD Guidelines for Trans-national Corporations set out an agreed code of corporate behaviour with respect to tax evasion and respect for labour rights and standards. In principle, these standards now apply to trans-national corporations operating outside OECD countries, and OECD countries have formally committed themselves to promote the guidelines and to monitor their effectiveness. In practice, the Guidelines have near zero impact since they are non binding on trans-nationals and since governments, including the Government of Canada, have done little if anything to promote them despite the OECD Ministerial Declaration of last year. But social activists could certainly take on the task of promoting enforceable standards of corporate conduct, and effective enforcement mechanisms.

Similarly, mechanisms could and should be found to ensure that states live up to international human and social rights agreements and legal instruments, such as International Labour Organization Conventions. The rationale for including these instruments in trade and investment agreements (as in proposed social clauses) is that the latter are indeed effective in ensuring state compliance. “Tacking on” social clauses to trade and investment liberalization agreements may not be the ideal solution, but governments should be forced to develop other effective mechanisms for promoting human and social rights.

It has become somewhat commonplace to say that national governments have lost power to mobile global corporations, while forgetting that these same governments have been in the forefront of promoting global economic liberalization. What has been created by international agreements can be regulated by new, positive agreements, and again there are some very tentative but positive moves. For example, the potential erosion of the corporate tax base has led even the OECD to propose some rules to shut down tax havens, and the social democratic government of Germany is seriously pushing 'upward harmonization' of the EU tax system.

To summarize, the old welfare state model of nationally regulated market capitalisms may be under threat to some extent from global economic liberalization, but democratic regulation of markets and promotion of positive social outcomes can take place at the international as well as the national level. This may seem utopian, but it is hardly more so than thinking that the answer lies in a return to more insulated nation states.

References

Arjona, Roman, Maxime Ladaique and Mark Pearson. "Growth, Inequality and Social Protection." Draft OECD paper presented to the IRPP-CSLS Conference on Linkages Between Economic Growth and Inequality, Ottawa, Jan. 26-27th. 2001. (Available from www.csls.ca.)

Auer, Peter. Employment Revival in Europe: Labour Market Success in Austria, Denmark, Ireland and the Netherlands. International Labour Organisation. Geneva. 2000.

Canadian Centre for Policy Alternatives (CCPA). Alternatives for the Americas. 1999.

Forster, Michael. "Trends and Driving Factors in Income Distribution and Poverty in the OECD Area." OECD Labour Market and Social Policy Occasional Paper No. 42. OECD, 2000. (Available from www.oecd.org.)

Jackson, Andrew. "Can There Be a Second Way in the Third Millennium?" Forthcoming in Studies in Political Economy. Summer, 2001a.

Jackson, Andrew. Why We Don't Have to Choose Between Social Justice and Economic Growth: The Myth of the Equity-Efficiency Trade-Off. Canadian Council on Social Development, 2000b. (Available from www.ccsd.ca.)

Jackson, Andrew. "Tax Cuts: The Implications for Growth and Productivity." Canadian Tax Journal Vol. 48 #2, 2000c.

Jackson, Andrew. "The NAIRU and Macro-Economic Policy in Canada". Canadian Business Economics. July, 2000.

Jackson, Andrew and Matt Sanger. The Multilateral Agreement on Investment and its Impacts. Lorimer and Canadian Centre for Policy Alternatives. 1999.

Larsson, Allan. "Social Protection and Economic Performance" in David Foden and Peter Morris (Eds.) The Search for Equity: Welfare and Security in the Global Economy. Lawrence and Wishart. London. 1998.

OECD with Statistics Canada. Literacy in the Information Age: Final Report of the International Adult Literacy Survey. 2000.

Osberg, Lars. "The Equity-Efficiency Trade-off in Retrospect." Canadian Business Economics. Vol. 3#3. Spring, 1995.

Ross, Nancy, Michael C. Wolfson, James R. Dunn, Jean-Marie Berthelot and George A. Kaplan ; "Relation Between Income Inequality and Mortality in Canada and the United States: Cross Sectional Assessment Using Census Data and Vital Statistics." British Medical Journal Vol. 320. April 1, 2000.

Sinclair, Scott. GATS: How the World Trade Organization's New "Services" Negotiations Threaten Democracy. Canadian Centre for Policy Alternatives. 2000.

Statistics Canada. "Health Status of Children". Health Reports Vol. 11 #3. Winter, 1999.

Wolfson, M. "On the Health of Canadians Across the 49th Parallel." Paper presented at Queen's University Institute for Social Policy, 2000.

Wolfson, M. and B. Murphy. "Income Inequality in North America: Does the 49th Parallel Still Matter?" Statistics Canada. Canadian Economic Observer. Cat. 11-010-XPB. August, 2000.

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