Feature

Stronger Together: A Four Sector Approach to Renewing Canadian Social Architecture

May 3, 2011 - Michael Van Pelt

This Canadian election did not make any fundamental shifts in the understanding of the ways and means of the government. There are still two basic tools in the political toolbox: private-for-profit tax cutting and redistributive public powers. Recently, Cardus argued that a third, often-overlooked tool in the public policy toolbox sustains much of the social architecture of these two sectors: the charitable or not-for-profit sector.

This approach paints a more genuine picture of our social architecture, but it continues to have serious shortcomings. First, using only three sectors tends to incorrectly reduce institutions to singular economic functions. But businesses are qualified by more than profit, governments by more than redistribution, and charities by more than altruism. Second, analysts also tend to default to one sector over another as the primary engine of economic vitality—the right to cutting taxes for the private sector, the left to wealth redistribution via the government. Two sector blinders continue to privilege market vs. government frameworks, when a non-reductionist approach would focus on interdependency rather than competition. Third, and perhaps most importantly, three sectors language obscures the recovery needed in other supporting sectors of society, which are not fundamentally qualified by—but nonetheless vital to—economic productivity. A fourth sector—natural communities which include marriage, family, kinship groups, and some forms of neighbourhood—is a much needed ally on the road to economic recovery.

Our core argument is that the renewal of Canadian social architecture is not the product of any single sector, but a by-product of robust interdependency between sectors, both those qualified as economic and those not. A four sectors approach should therefore be characterized by interdependency, rather than competition or discrete productivity. This gives us the political lens through which to look at other critical partnerships, like natural communities.


1. Irreducible Economics: Sectors, Not Silos

One of the casualties of overheated political rhetoric is careful analysis. Corporations are targeted and vilified for absolutizing short-term profit. Public governments are lambasted for redistributive and bureaucratic waste and the altruism of charities is regularly undercut by the necessity of generating revenue. Each sector faces major challenges which can—ironically—be best met by borrowing from the infrastructure and virtues of the other sectors.

In the business world, it is almost anachronistic to say that a myopic focus on short-term profit has undercut the vitality of the private for-profit sector. The economic crash demonstrated what Cardus Senior Fellow Jonathan Wellum calls "short-termism": the generation of massive short-term profits based on inflated bubbles and third party liabilities. When the house of cards came down and the whistles were blown, some pundits argued that short-term profit is the business of the private sector. Short-termism, in other words, was endemic in the nature of the for-profit system. If the public didn't like how business was being done, laws needed to be changed. The qualifying function of unlimited profit was at the heart of this sector.

But this is hyperbole, even to the most jaded observer. Profit does not exist in a vacuum, nor do the markets that sustain it. Corporations are not normally founded, and indeed hardly flourish, with the sole function of maximizing profits. This might happen, but we would also hasten to add that this is an example of bad corporate practice. Corporations require profit, but they are often founded altruistically to make something that will genuinely improve people's lives. They are also the primary social means of redistributing wealth through labour and investment. Clearly profit does not exhaust the functions of the private sector.

Nor is the answer that businesses simply need virtuous people. Markets and corporations are themselves embedded in intimate ways with the other sectors of the economy. There is, in a very real sense, no such thing as a free market—if by "freedom" we mean unfettered, unembedded, and unstructured. Markets, in fact, function with a very high degree of structure, and most of that structure is provided by spheres other than the for-profit sector. Corporations depend on public law to protect their property.

Hernando de Soto argues at length in The Mystery of Capital that property rights, the rule of law, precede or at minimum must be simultaneously realized alongside commerce. Tom Flanagan has made a similar argument in Beyond the Indian Act, arguing that the federal government's neglect to provide property rights for indigenous peoples is a key reason for instability and poverty in those communities.

The public sector also does more than set the rules of the game. It serves a redistributive function. In the developed world, the increasing gap between the rich and poor has become a serious concern, and one the market economy is addressing sluggishly, if at all. When the gap between rich and poor is too wide, it is altogether possible that the interdependent balance of the sectors has been upset. Excessive concentration of economic power is, in fact, widely recognized as an economic and social bad—that is, injustice. At bare minimum, this is the instinct behind anti-trust laws. In more robust democracies, public powers have even taken a minimal redistributive role, commonly called welfare systems.

Private sector advocates may balk at extensive welfare systems, but a widening gap between rich and poor also creates conditions within which markets are unable to function. Poverty, in short, is only naively a left-of-centre concern. If interdependency does indeed characterize the relationship between sectors, then growing, systemic poverty is the proverbial canary in the private sector coal mine. Market systems cannot function properly—or justly—with extreme concentrations of wealth and poverty.

The public sector is not insulated from private sector success and failure. "Too big to fail" is a sad euphemism for what has become the large-scale public buyout of failed corporations, most pointedly in America. Enormous public debt in America, and to a lesser but nonetheless serious extent Canada, profoundly underlines the interdependency of these sectors. Conclusively, the resources of the public sector implicitly rely on the generation of private wealth, either corporate or individual. Among other things, this provides public accountability for government expenditures.


2. Recovery as By-Product: Interdependency, not GDP

The three sectors approach also tends to default to a single sector as the primary engine of government policy. Private sector advocates default to corporate tax cuts, fuelling job creation and wealth generation. Public sector advocates default to redistributive public programs, arguing for the long view of economic strength in equality and opportunity. But if the argument for multi-sector interdependency is right, then the binary logic of private and public misses the point. Economic vitality cannot proceed at the expense of one or another sector. Misbalance will ultimately feed back into the privileged sector and undermine its own vitality.

The simultaneous realization of social norms must therefore be the hallmark of any economic recovery plan. It is not enough, for instance, to cut corporate taxes to ensure the vitality and profitability of private industry if the gap between rich and poor continues to grow. Neither is it enough to continue to subsidize, through volunteerism and charity, indecision and sloth. Work is itself a dignity which redistributes wealth on principle. No sector has a monopoly on our vital signs, and it is becoming increasingly clear that turbulence in one means significant shortfall in another.

This is the key reason for why vital societies result from an interdependence of all sectors. Government cannot redistribute wealth that is not being generated, and high concentrations of wealth cannot sustain a market system. Civil associations and charitable giving depend on both the private and public sector for the social architecture within which to embed its activities.

The rise and fall of one of the greatest economic statistics of all—gross domestic product—is, in part, a recognition of this interdependency. Once understood as the ultimate measurement of a country's overall welfare, it's increasingly apparent that the term is simply too narrow to capture true economic vitality. Efforts to revitalize the term, like China's "green GDP"—a measure of economic output that takes environmental factors into consideration—have largely stalled (it would have knocked 3 percent off China's 2004 GDP). In the United States, recovery after 9/11 saw successive rises in GDP from 2002 to 2006, but falling personal income. In November 2010, British Prime Minister David Cameron announced that his government would measure happiness, along with other economic measures. In short, GDP measures productivity, but gives very little by way of a total picture of economic vitality. It gives even less of a picture of the vitality of Canada's larger social architecture.

So the concern of government policy is to measure vitality, not merely by profitability in the private sector, but also by the distribution of wealth, the extension and practice of generosity and charity in civil society, and the integration of these systems with one another. Measuring vitality as a by-product of multi-sector interdependency, rather than the product of first sector profit, is the first step.


3. Toward Four Sectors: Natural Communities in Political Analysis

Third, three sectors language obscures the recovery needed in other supporting sectors of society, which are not fundamentally qualified by—but nonetheless vital to—economic vitality. Natural communities (a prior sector) are much-needed allies on the road to renewing Canadian social architecture. Natural communities include marriage, the family, kinship groups, and some forms of neighbourhood. They are not authorized by the state or brought into existence by the market, nor are they strictly voluntary as in civil society. They are fundamental to our moral and social horizons and, as such, are critical, often-overlooked building blocks of Canadian social architecture. While it would be perverse to suggest that these communities are fundamentally qualified by their economic relationships, it is true that natural communities have economic aspects.

Families are the front line of the Canadian demographic crisis. As we've detailed in A Culture of Generosity and The Shifting Demand for Social Services,Canada's natural communities are in for a crunch: in 2001, one in eight Canadians was over the age of 65. By 2026, it will be one in five; by 2030 one in four. At the same time, the Vanier Institute of the Family tracked a climb in average family debt, including mortgage, has hit $100,000 and the debt to income ratio is 150%. This means that for every $1,000 in after-tax income, Canadian families owe $1,500.

Compare this to 1990, when average household debt was $56,800. Savings have also been shrinking. In 1990, the average family managed to save 13% of their income, or $8,000 compared with a savings rate of 4.2%, or $2,500 in 2010. Canada's debt-to-income ratio has now reached about even with the United States.

Family expenses are also on the rise. Recession year numbers indicate the biggest increases in medical care and health services (6%) while drops in oil prices caused transportation and communication to fall. Those drops have since reversed. But by far, the fastest growing out-of-pocket expenses are medical care and health service.

If interdependency means that Canadian social architecture depends on the strength of natural communities, then private industry, public policy, and the charitable sector have a strong interest in this growing demographic and financial crisis facing families. We need fast, integrated, creative intervention on family-friendly policies. These policies could include intergenerational home care, like tax benefits for dependent seniors, including a second tier for intergenerational homes.

While there is a natural limit to the role public policy can and should play to revitalize other sectors, some ideas—like family income splitting—have been used to positive effect in France and other developed democracies. The Conservative plan to introduce a similar plan after the balance of the budget is a step, if belated, in the right direction. Other work should be considered to streamline family tax policy architecture, which is needlessly complex for families already dealing with extraordinary pressures. A simple, tax benefit system for families and children in Canada is long overdue. This system should prioritize the virtues of traditional families, encouraging growth rates past replacement levels (2.1), extend all the way to 18 rather than only to children under 6, and should be weighted by income levels to decline in benefit as family income increases. In the shorter term, and failing this, the Universal Child Care Benefits could be extended to age 18 and its payments made tax exempt at both the federal and provincial levels.

It's important not to overstate the degree to which families make decisions based on tax incentives. But according to Doug Allen at Simon Fraser University, state benefits do have some influence on decisions of parenthood, births out of wedlock, and divorce (Allen, "Welfare and the Family: The Canadian Experience," Journal of Labor Economics). While these are clearly qualified by moral as well as economic considerations, they nonetheless have strong social implications. Divorced families are weaker economic units, and children out of wedlock statistically suffer a variety of disadvantages. Saving the moral arguments for another day, traditional, generative forms of marriage remain in the interest of a strong Canadian social architecture.

The health of natural communities is therefore inextricably bound to the health of the other sectors. While there are limits of what one sector can do for another—for example, limits to what public policy can do to sustain families—a mutually reinforcing, multi-sector approach is key to providing the supporting architecture, a certain catalyst within which parents are encouraged to make decisions for bigger, healthier families.

While our focus has been on the intersection of public policy and natural communities, the need to articulate and advocate strong economic interdependencies between the sectors has never been greater.


Conclusion

The irony of the liberal democratic state is that it cannot legislate those virtues by which it continues to thrive, nor can markets sell them. If this is true, then a left-overs charitable sector for voluntary associations and charitable giving cannot be a sufficient policy prism by which to ensure Canadian vitality. We have never been more ignorant of—and depended more profoundly upon—the health and vitality of natural communities, especially the family.

Our core argument is that the renewal of Canadian social architecture proceeds not as a product of any single sector, but as a by-product of interdependency between sectors. The more mutual reinforcement between sectors, the stronger picture we have. Worrisome statistics suggest that our natural communities and voluntary associations are suffering neglect, as the public and private sectors monopolize economic and political attention. But we are stronger together. A four sector approach, based on the simultaneous realization of norms, is fundamental to the vitality of Canadian society.

Posted in Culture, Markets, Politics.

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This Article Belongs To ...

  1. May 2011: 2011 Federal Election
    CPIP - 2011 Federal Election

    The 2011 Special Election Edition of Cardus Policy in Public features Cardus' election analysis; a new four-sector framework for the renewal of Canadian social architecture; and commentary on the reorganization of Canada's left.


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