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The role of the public sector and carework in wealth creation: Background for debates around the upcoming Ontario budget

Posted by Salimah Valiani
Salimah Valiani
Salimah Valiani is Associate Researcher with the Centre for the Study of Educati
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on Monday, 11 March 2013
in CHNET-Works!

Much like caring work, the role of the public sector in the creation of wealth is regularly undervalued and even disregarded. Due to this, the focus in policy debates is on public sector spending, with the 'necessary' conclusion that the amount of spending must be reduced within the context of provincial and federal budget deficits.

An entirely different approach is to begin with the assumption that carework and public services are part and parcel of wealth creation. Using the Statistics Canada database accounting for sales and purchases of all industries in the Ontario economy, a study by the Centre for the Study of Spatial Economics calculates the value of output generated by one dollar of spending in various sectors. This is one way of operationalizing the assumption that public services contribute to the creation of wealth.

The study shows that public spending in the areas of health care, social services and education creates more value added than private sector investment. To cite some figures, 87 cents worth of economic output is generated through every dollar spent on public health care, education and social services. This is considerably greater than the 61 cents added to economic output through private investment in machinery and equipment.

In turn, though public spending cuts in health, education, social services look good on the balance sheet in the very short term – they shrink economic growth, which isn't beneficial to the economy and society as the whole.

Along the same lines, for every dollar cut from public health care, the Ontario deficit is reduced by merely $1.95.  This compares with a deficit reduction of $2.60 for every extra dollar collected by government through the Harmonized Sales Tax, and $2.70 deficit reduction for every extra dollar collected through personal income tax.

Following this logic, the next question that arises is: Are health care and social service cuts worth it? Because we take carework for granted, we overlook the costs of cutting public health care services – which end up costing us more as the burden of increased illness arising from unmet needs falls on unpaid caregivers, over-extended RNs, and other paid care workers.

Another aspect of public services that is typically disregarded is the financial benefit of public services to citizens. This is likely why the effects of federal and provincial public spending cuts have been so little debated in public discourse.

On average, each citizen or permanent resident of Canada relies on $17,000 worth of public services annually. Health care, education, and personal transfer payments account for approximately 56 per cent of this amount. The rest includes water treatment services, parks, and road maintenance, to mention just a few.

Taking into account these economic and financial benefits of public services, the Ontario Nurses’ Association proposes that ‘social efficiency,’ rather than ‘market efficiency’ is the appropriate framework for health care and other public spending choices in Ontario. Market efficiency is the maximizing of short-term cost savings, while 'social efficiency' is the maximizing of public benefit. Social efficiency in health care is based on practical knowledge sharing and collaborative decision-making in the organization of care. RNs and other frontline care workers are central to formulating socially efficient reform measures – not private consultants working on the basis of short-term calculations. Beyond public services, citizens as a whole must be engaged in discussions of public spending and public revenue generation as part of the decision making process resulting in the 2013-14 Ontario budget.

Related resources

For an in-depth treatment of the ideas and analysis presented here, see the ONA research paper Easy to Take for Granted: The role of the public sector and carework in wealth creation.

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People who get it, Part 2

Posted by Ted Schrecker
Ted Schrecker
Ted Schrecker is a clinical scientist at the Élisabeth Bruyère Research Institut
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on Friday, 14 September 2012
in CHNET-Works!

I've tried to make the case in previous postings for considering public finance as a public health issue. In a new article in Foreign Affairs,(1) Massachusetts Institute of Technology political scientist Andrea Louise Campbell makes several relevant arguments. She isn't concerned with health, and she is writing in the US context, but many of the analytical issues are relevant to our situation.

Campbell starts with the observation that the percentage of GDP that Americans pay in taxes is lower than in any high-income country: 24.1 percent. In the OECD as a whole, the figure is lower only in Chile (which has no national personal income tax) and Mexico. For Canada, the figure is 32 percent – higher than the United States, but a dramatic contrast with the Nordic countries, Italy, Belgium, Austria and France, where the figures are over 40 percent. She also points out that the drastic increase in economic inequality in the US, in particular concentration at the top of the economic scale (the one percenters, defined literally and statistically), is partly attributable to cuts in personal income tax during the Bush II presidency. (We know by way of the work of Emmanuel Saez that it is also a consequence of a steady rise in the market incomes of the one-percenters that began circa 1980; the relation between that trend and subsequent public policies must be left for another posting.)

There is more to the picture, though. Campbell points out that the much higher tax revenues available to European governments come not from higher and strongly progressive income taxes, as we might like to think, but rather from high consumption taxes, which are actually regressive: in other words, their impact is proportionally larger as you move down the income scale "because lower-income households tend to spend everything they earn." What, then, accounts for the contrast between the US and most of continental Europe in such matters as poverty and income inequality? Part of the answer lies not on the revenue side, but rather on the expenditure side: "In Europe, regressive taxes are matched with highly redistributive states. In the United States, mildly progressive taxes are matched with a not very redistributive state." Still another contributor is the much higher prevalence of low-wage jobs in the US ... and although Campbell does not make the point, that in turn probably has a lot to do with the weakness of unions, in particular outside the public sector.

tom slaterTom Slater, University of Edinburgh

Geographer Tom Slater, at the University of Edinburgh, is likewise concerned with various dimensions of economic inequality. Much of his earlier work was concerned with the process of gentrification and how it disrupts the lives of people who are displaced. In one forthcoming paper, he offers a powerful critique of the "cottage industry" of neighbourhood effects research in urban studies. Like Campbell, he is not specifically concerned with health, but much of what he says is immediately relevant to the study of neighbourhood effects on health. It has already been pointed out, in a widely cited article by Steven Cummins and colleagues, that most of the usual study designs are likely to understate such effects, because they involve a static definition of place (normally with reference to residential location) rather than a relational one that reflects the complexities of daily life on limited resources.

Slater's critique is more fundamental: such studies presume that where people live is the problem, rather than asking "why do people live where they do in cities? If where any given individual lives affects their life chances as deeply as neighbourhood effects proponents believe, it seems crucial to understand why that individual is living there in the first place" (italics in original). Failing to begin by questioning the operations of an economic system that sorts people across metropolitan space based on their purchasing power in land and housing markets means that "neighbourhoods ... become the problem rather than the expression of the problem to be addressed." This warning should be kept in mind by health researchers who generally tend to shy away from such structural explanations, preferring instead to focus on how neighbourhoods are conducive to certain kinds of 'health behaviours' like smoking and unhealthy eating.

In another forthcoming paper, Slater borrows a term from a book edited by Robert Proctor and Londa Schiebinger - Agnotology: The Making and Unmaking of Ignorance – in which the contributors address the question of "what keeps ignorance alive, or allows it to be used as a political instrument?" Canadian readers even vaguely familiar with the track record of our current national government need no explanation of this question's importance. (Proctor's interest in this topic began with research on the tobacco industry's efforts to create doubt about the health effects of smoking; David Michaels, who has done superb work on how industries manufacture uncertainty with respect to impacts on health and the environment, is one of the contributors.)

Slater argues that a right-wing think tank in Britain has played an important role in producing and sustaining ignorance about the root causes of poverty, ascribing it to failures of personal responsibility and the creation of 'dependency' by already minimal programs of social provision in much the same way as the protagonists of welfare 'reform' in the United States during the 1990s. The Conservative-led government that came to power in 2010 enthusiastically adopted this analysis, proposing workfare requirements and multi-billion-pound cuts in benefits while ignoring research evidence that such measures "do not lift people out of poverty, but rather remove them from welfare rolls, expand dramatically the contingent of the working and non-working poor, and affect their daily existence negatively in almost every way imaginable." The lack of available jobs, as a result of decades of deindustrialization, is simply ignored - a point also made eloquently by Owen Jones in his book Chavs: The Demonization of the Working Class.

These are superficial renderings of complex and important papers, but they have several key messages for everyone working in population and public health in Canada. First and foremost, we have much to learn from those working in disciplines that have no direct connection with health, and outside Canada. The retreat of the state in Canada from redistributive policies was well established before the financial crisis. Since then, in Canada as elsewhere, we have been told that expenditure cutbacks – "austerity" – were essential in order to keep government deficits from becoming unmanageable. Most current approaches to austerity are highly selective, though. They involve cuts to expenditures (or moratoria on new investments) that mainly benefit the least well-off; they demand little or no sacrifice from the wealthy; and they focus almost exclusively on the expenditure side. For example, as noted in a previous posting Ontario's Drummond Commission on the province's fiscal future was ordered not to consider the option of raising taxes from their historically low levels – a choice that has clear implications for any society's ability to provide the opportunity for a healthy life to all.

By now it should not be contentious to state that poverty and chronic economic insecurity are hazardous to health. It may not be stating the case too strongly to suggest that controversy on that point is manufactured, in the same sense that controversy about the health hazards of tobacco and the evidence for personal fecklessness as a major cause of poverty are manufactured. To be sure, there is much still to be learned about how social determinants of health affect health equity, but the apparent determination of research funding agencies not to support the relevant lines of inquiry itself merits study using the rubric of agnotology. Finally, Slater's trenchant critique of the neighbourhood effects literature addresses not only the limitations of a particular kind of inquiry, but also the imperative of methodological self-consciousness in all forms of research on health and its social determinants.

(1) Unfortunately, only a summary of the article is available for open access

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Life A.D. (After Drummond), Part 2: Structural adjustment for Ontario?

Posted by Ted Schrecker
Ted Schrecker
Ted Schrecker is a clinical scientist at the Élisabeth Bruyère Research Institut
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on Monday, 19 March 2012
in CHNET-Works!

On February 15 the Government of Ontario released a far-reaching report on reorganizing public service provision in response to the budget deficits that followed the post-2008 recession. The central theme of the report was that “just to meet the government’s goal of a balanced budget seven years hence, the government will have to cut even more deeply from its spending on a real per-capita basis, and over a much longer period than the Harris government did in the 1990s, without the option of an immediate deep cut in social assistance rates” (p. 121). Ontarians will remember that the Harris government cut those rates by 21 percent almost immediately after coming to power. Despite some increases, in 2009 they remained (depending on the type of household receiving assistance) between 17 and 38 percent lower than in 1996 after adjusting for inflation, according to the National Council of Welfare.

The Commission says much that is important and worthwhile about health care in Ontario, starting with the recognition that Ontario does not really have a health care system, but rather “a series of disjointed services working in many different silos” (p. 152), and that Ontario health care does not perform well based on international comparisons. Well grounded hypothetical descriptions of patient trajectories spotlight shortcomings in health care performance (pp. 153, 159, 164), measured against what ought to happen as a matter of routine. The report makes a compelling case for improving coordination among the silos, through measures both large and small, and making the non-system’s current approach to complex and chronic conditions (the management of which is also very costly) more effective – all of which should have been accomplished long ago, for reasons unrelated to cost. The report urges “aggressive” negotiation with the Ontario Medical Association on compensation (p. 189) – bringing to mind Robert Evans’ long-standing insistence that "cost containment is in aggregate income control, by definition" – and, perhaps more importantly from a health policy perspective, insists on moving “critical health policy decisions out of the context of negotiations with the Ontario Medical Association and into a forum that includes broad stakeholder consultation” (p. 185).

life-ad-part-2-pic-1 A leaner, meaner Ontario: Locked out workers at the Electro-Motive plant in London, Ontario, January 2012. Photo: CAW Media; reproduced under a creative commons licenceAlthough such changes are overdue, hard questions remain unanswered. The Commission proposes to strengthen Ontario’s 14 Local Health Integration Networks (LHINs, the province’s variation on regional health authorities) so that they can improve coordination among silos and health care management in general. But can these entities accomplish such critical tasks as ensuring that best practices are rapidly adopted province-wide? What are the pitfalls of specifying that the accountability of LHINs, currently with no requirements for public participation, is to the Ministry of Health, as per the Commission’s recommendations, rather than to the clients they serve? And the proposed transformation of an organization called Health Quality Ontario, now an advisory body, into “a regulatory body to enforce evidence-based directives to guide treatment decisions and OHIP [Ontario Health Insurance Plan] coverage” (p. 186) could be a dream or a nightmare. Since “nothing works” is a fiscally attractive conclusion, we can imagine immense pressure to compromise transparency and scientific integrity, and ignore standard of proof issues, in the interests of cost containment.

The report further acknowledges the importance of social determinants of health: “Socio-economic factors such as education and income explain 50 percent” of population health outcomes, and the physical environment another 10 percent (p. 132) although the percentages, drawn from a Canadian Senate Committee report, appear to be guesstimates and no supporting evidence is provided. This acknowledgement is ironic, to say the least, given what the Commission has to say about social policy.

The Commission’s proposed 0.5 percent limit on annual spending growth for all social programs means that no increase in social assistance rates is envisioned, despite the decline from mid-1990s levels. In fact, the Commission proposes slowing the provincial takeover of social assistance costs downloaded to municipalities during the Harris era (p. 483), prolonging the nineteenth-century practice of leaving “poor relief” to local governments. (Unfortunately, some surveys find that nineteenth-century attitudes toward economic hardship remain widespread.) No new resources are contemplated for social or affordable housing, despite the existence of multi-year waiting lists in much of the province. As the Toronto Star’s Thomas Walkom and a policy analyst for the Ontario Nurses’ Association have pointed out, despite Drummond’s long career as a professional economist, the report ignores the employment consequences of taking billions of dollars out of the provincial economy. Walkom predicts that implementation of the Drummond recommendations would cause unemployment in Ontario to rise to 11 percent by 2018, “even without another global crisis”. Poverty reduction is nowhere acknowledged as a legitimate goal or priority of government; indeed, the word “poverty” appears only six times in the text of the 562-page report.

To put this discussion into context: on Thanksgiving weekend in 2010, the Premier of Ontario was quoted by CBC News as urging Ontarians to donate to food banks, and in March, 2011 395,000 Ontarians relied on a food bank to feed themselves at least once. Rents and food prices are not going down. So the Commission has said to a significant proportion of Ontarians: forget about any hope that your opportunities to lead a healthy life will improve before 2017-2018. The cupboard is bare.

But is it, really? In order to answer this question, we have to look at both the revenue side and the expenditure side of Ontario’s public finances, in historical perspective. The Commission itself emphasizes that “spending is neither out of control nor wildly excessive. Ontario runs one of the lowest-cost provincial governments in Canada relative to its GDP and has done so for decades” (p. 5). Further, it notes that the provincial treasury’s “own-source revenues” – taxes and user fees collected by the province, as distinct from revenues received from federal transfers – as a percentage of provincial Gross Domestic Product (GDP) were considerably lower (13.65 percent) in 2010-2011 than in 1999-2000, midway through the Harris era (15.9 percent). Although precise comparisons are impossible, this is consistent with estimates by the Canadian Centre for Policy Alternatives that, every year since the start of the century, provincial tax cuts (mainly in personal income tax rates) begun in 1995 have reduced revenues by between $10 billion and almost $18 billion relative to the revenues that would have been received if tax rates had remained at their 1994-95 levels. In other words, well before the post-2008 and its undeniable effects on revenue stream, the province’s fiscal capacity was suffering from major self-inflicted wounds.

life-ad-part-2-pic-2

The Commission was instructed not to consider the possibility of raising taxes. However, as shown in the illustration, if we accept the Commission’s estimates of the growth of the provincial economy and the spending restraints incorporated into the Drummond Commission’s “preferred scenario,” but are willing to consider tax increases sufficient to return own-source revenues as a percentage of provincial GDP to their 1999-2000 level by 2017-2018, we see that the budget is in surplus by more than $22 billion. Stated another way, if the province were to pursue what Hugh Mackenzie of the Canadian Centre for Policy Alternatives has called “an adult conversation about the public services we need and the revenue we are going to have to raise to pay for them,” the provincial budget could be balanced in the target year while making available $22 billion more than the Drummond projections for program spending. According to one commentator the province is not even planning pre-budget legislative hearings, thus making it difficult to start such a conversation. Indeed, the Commission’s description of the provincial budget as “a powerful educational tool” (p. 13) suggests that most of the key immediate decisions have already been made. Its proposal for a centralized expenditure management process involving the Premier’s Office, Cabinet Office and Ministry of Finance that “should stay in place for at least several years” warns of little room for debate in the future (pp. 140-141). Shouldn’t public finance be a matter for public debate?

At several points in its report the Commission underscores the difficulties created by the government’s refusal to consider tax increases, anticipating (for instance) a $38.5 billion shortfall in financing planned and necessary public transit investments in the Greater Toronto and Hamilton Area. For those who can afford to drive everywhere, this means only the inconvenience of more traffic jams; for those who can’t, it may seriously limit mobility … and of course that foregone investment also means lost employment. The Commission states that its budget-balancing strategy would mean “tough decisions that will entail reduced benefits for some” (p. 69) – although not, it seems, for everyone. On the matter of soaring compensation for people like Drummond’s fellow commissioners at the top of public sector salary scales, the report says that “focus must remain on the larger picture, which is the government’s need to get the right people into the right positions at a cost that is both compatible with its fiscal circumstances and appropriately aligned with private-sector compensation” (p. 138). Well, workers at Electro-Motive Diesel’s London, Ontario plant know about that kind of alignment: they were locked out after refusing a 50 percent pay cut before the parent company closed the plant and moved the work to Indiana. In the Ontario of tomorrow, it seems that what Saskia Sassen calls “the savage sorting of winners and losers” characteristic of the contemporary global marketplace is to be accepted, and indeed welcomed.

life-ad-part-2-pic-3

Any assessment of the Commission’s implications for population health (and never was there a better example of the need to apply health equity impact assessment to macro-scale economic and social policies) should keep this in mind. As pointed out by (among others) economist Erin Weir of the United Steelworkers, there is quite a bit in the report that those of us committed to social justice can support. At the same time, the report is about much more than public finance. Effectively, it recommends for Ontario a variant of the structural adjustment programs* of marketization and social policy retrenchment demanded by the International Monetary Fund in return for loans enabling low- and middle-income countries to reschedule their debts to external lenders, in the process creating widespread economic hardship and seldom leading to long-term economic improvements. Equity, for both the IMF and the Drummond Commission, was an unaffordable luxury. Against a background of worsening economic disparities that would be further magnified in the future envisioned by the Commission, what is the future of health equity in Ontario? And who will decide?

 

* For readers unfamiliar with the history of structural adjustment, two excellent recent review are Babb, S. (2005), The Social Consequences of Structural Adjustment: Recent Evidence and Current Debates, Annual Review of Sociology, 31, 199-222 and Pfeiffer, J. & Chapman, R. (2010), Anthropological Perspectives on Structural Adjustment and Public Health, Annual Review of Anthropology, 39, 149-165. Unfortunately, so far as I know neither of these is available on an open-access basis.

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