Madam Speaker, the Reform Party supports the principle of Bill C-3 as was noted by the two Reformers who spoke on the subject before me. Reformers, as well my constituents, believe that it is important to preserve and cultivate the humanitarian instincts of Canadians that drive us to want to help those who find themselves in financial or other difficulties.
My two colleagues have noted two criticisms of Bill C-3. One is its planned increases in the level of transfers while the government is beset by very serious financial problems. All spending needs to be curtailed. Interprovincial equalization payments ought not to be exempted.
The second criticism was that the government has been carrying the principle of equalization too far. If Bill C-3 does what it is designed to do there is no need to use other spending programs to favour provinces with low income and taxation capacity.
These two objections to Bill C-3 are valid. I would like to add an additional one which involves the very nature of the equalization program as it functions now. My criticism is based on my academic research and understanding of the problems which are caused by subsidy programs of all sorts. It is also based on messages which I have received from my constituents.
Finally I should note that the criticism is based on the same kind of reasoning which underlies the recently announced government review of all social programs in Canada. These programs have failed to deliver on the promise which underlies their design. They have blunted incentives, increased unemployment, trapped people in poverty and made them dependent upon government support. These are almost identical words to those used by the Minister of Human Resources Development in the House.
In addition, the programs, not the innocent victims who have reacted to the incentives created by the government, have contributed much to the present fiscal crisis of the country. I believe the compassionate people of Canada are fully in favour of helping others who have fallen on hard times. However, many Canadians have told me they also insist their aid be conditional upon efforts being made by the unfortunate to change their own lot. Some, like those with permanent handicaps, cannot and are not expected to do so. For those the support is happily given on a permanent basis. For others, however, the aid must be limited and conditional.
It is well known that the interprovincial system of equalization payments was designed to create greater equality. However, when the program was designed it was hoped that such transfers would be temporary because the federal government simultaneously started a substantial program for regional economic development.
Since the beginning, regional economic development programs have been beset by difficulties. There have been experiments with a variety of models and with locating responsibility for their administration in different ministries.
During the 1980s I was the academic director of a research project on the Canadian service industries undertaken by the Fraser Institute and financed by what was then the department of regional industrial expansion. One of the prime motives for the study had been the realization that the spending of billions of dollars on infrastructure and megaprojects, as well as direct subsidies to industry, had not narrowed the income gaps between the have and the have not provinces.
The fact that over 70 per cent of all Canadians are working in the service sector had awakened interest in the possibility that perhaps more development per dollar could be obtained by support of service industry projects than the traditional investment in structures and machinery.
I mention this study of the service industries to illustrate the problems which regional development programs have encountered, problems which in the view of many have been so severe they made the programs an almost complete failure. The reasons for this failure are quite clear now.
Historically regional disparities in income in Canada and all industrial countries of the world were due to different endowments with natural resources. The maritimes enjoyed one of the highest levels of income in Canada at a time when rich fisheries and coal were the primary base of the income of people and regions. Later the fertile plains of the prairies gave that region one of the highest incomes in the country.
For at least the last 70 years, however, the wealth of nations has been increasingly based on the accumulation of human and knowledge capital rather than natural resources.
Just look at the per capita income of Singapore and Hong Kong, tiny geographic regions with zero natural resources. Singapore does not even have enough water for its people. Some estimates suggest that as much as 60 per cent to 70 per cent of the wealth of modern industrial states consists of such intangible human and knowledge capital.
Unfortunately for regional development prospects, human and knowledge capital are most productive only in large population centres, where the so-called agglomeration economies generate the high productivity that underlies high personal incomes. In these centres, the proximity of people lowers transportation and communication costs, allows increased specialization and creates other productivity increasing benefits like competition in markets for labour and goods and services.
For this reason, in Canada and all industrial countries, megacities with high population densities have the highest incomes and outlying areas are further behind the more remote they are from the urban centres.
According to this view of the role of human and knowledge capital and the economics of agglomeration, the solution to regional income inequalities lies in the movement of people from outlying areas to the centre. Such movement, which in Canada until the 1960s had been gradual and low cost, permitted higher incomes to be earned by the migrants and, more important, it raised the income of those remaining behind.
Just imagine incomes in the fishing industries in the maritimes or the farm sector in the prairies if the population of these regions were perhaps half its present level. The adoption of the best production technology, regardless of the effect on employment, would permit the smaller number of workers in these industries to enjoy higher levels of productivity and income. No one knows at what population levels emigration would have ceased. It is clear that eventually it would have equalized incomes in the centres and outlying regions, where income is broadly defined to include such intangibles as the quality of rural life and the cost of congestion in cities.
The tragedy of many post-war government policies for Canada was that they disregarded the decreasing role of natural resource wealth in the increasing role of human capital and cities in economic development.
The income equalization program being extended by Bill C-3, the regional development programs and the payment of unemployment insurance benefits to workers in seasonal industries like fishing have severely retarded outward migration from remote regions with low incomes. The natural adjustment which market forces were generating gradually were short-circuited by these policies.
The policies undoubtedly were well intentioned but basically flawed, unfortunately. They have had several unfortunate effects. To finance the transfers and fruitless development efforts in the outlying regions the productive areas had to be taxed more heavily. Extra payroll taxes going to the unemployment insurance funds have raised labour costs and discouraged employment.
The disincentive effects of such taxation on investment, work and risk taking retarded the growth in the entire country's income and wealth. The lower rates of economic growth which started more or less with the initiation of these regional assistance programs in turn retarded the increase in government tax revenue. They therefore contributed significantly to the financial crisis and the need for the redesign of social programs that will be discussed in the House in upcoming months.
Equally unfortunate has been the impact of the policies on the people in the outlying regions. I find it most distressing to see videos of workers in the maritime fishing industries and of farmers in the prairies who have lost their jobs and are afraid of losing their homes and possessions. Perhaps more important, as the Prime Minister kept noting during the election campaign, these people have lost their dignity. They have become dependent upon government handouts, the generosity of the House.
The predicament which these people find themselves in is not of their own making. They are the victims who simply have acted rationally in their response to the incentives created by government policies.
These people deserve better. They deserve that the government and this House initiate a review of the existing programs for regional assistance and development. The government has already announced plans for a major review and redesign of social programs affecting individuals. Regional assistance and development programs should be included explicitly in such a review.
I have my own views on the insights which such a review might produce. Abstracting from all political considerations, Canada needs to restore market incentives for migration, the only fundamental and lasting solution to the problem of regional inequalities that does not also create dependence and a loss of dignity. To create these incentives all present forms of regional transfers must be phased out. Such phasing out should be gradual but certain.
In place of current programs we need to have programs that are both economically efficient as well as consistent with the compassionate nature of Canadian society. Financial transfers to regions and provincial governments must be limited to situations where incomes are reduced to events beyond the control of those affected.
Outstanding examples are the disappearance of fish stocks, bad harvests or low world prices for certain products. The payments must be limited to the duration of temporary adverse influences on incomes. In the case where incomes are lowered by permanent changes in conditions, financial support must be conditional upon the adoption of policies that bring about real adjustment to the new environment.
People who are asked to make payments to help others should have a right in deciding on how this money is being spent. Many people believe the proposed characteristics of regional assistance programs must also be incorporated into social programs serving individual Canadians if the country ever wishes to restore the government's fiscal health and at the same time maintain a sound social security net for those in genuine need. They also agree that the sooner such a review is accomplished and acted upon, the better.
For these reasons I recommend that the government append Bill C-3 to mandate such a review. In addition I recommend that the government send a message to the recipients of the equalization payments suggesting that future transfers will be made conditional upon real adjustment needed to equalize regional productivity and income.