Chronic Condition by Jeffrey Simpson, Review

Western governments struggle to organize and finance healthcare, education and defense. Unlike the case of cars, wheat and whiskey, these three broad areas involve a complex production and distribution process. While each has a long history, no simple best way of delivery has emerged.

Here the focus is on healthcare, a complex system of production and delivery which is subject to rapid technological change and demographic pressures requiring increased funding.

Canada congratulates itself on its universal heathcare system. Any politician suggesting otherwise won’t last long in office. The facts tell a different story, and Jeffrey Simpson explodes the myth that all is well in the healthcare sector. Read the book to appreciate this irrefutable conclusion, and read it especially if you are interested in the care you are likely to receive as you progress from youth through adulthood to old age, the last a particular concern of mine. If not broken, the system is on life support.

Healthcare is a layered process, involving several interested parties including hospitals, drug companies, doctors , nurses, healthcare professionals, and individuals whose lifestyle decisions affect their demand for healthcare throughout their lives. When the system is publicly funded, my lifestyle choices  such as driving recklessly, consuming alcohol, overeating, engaging in extreme sports means that others pay for my expenses.

The layers include the decisions of individuals, treatment required for particular illnesses, and the costs associated with an ageing population. Healthcare delivery also has to be prepared for unexpected man-made and natural disasters such as wars, terrorism, earthquakes and tsunamis. This is a far cry from the car manufacturer who is concerned with the production, distribution and maintenance of cars. Even a massive recall is not the same as dealing with the contamination caused by a damaged nuclear reactor.

Chronic Condition examines the parts of the system which produce and deliver healthcare and shows how difficult it is to reform a complex system which has many interested parties. One example, and there are many, is what happens when governments allocate more money to the system. The immediate response is not to increase the health services but to lead those involved to ask for higher pay, whether doctors, nurses, technicians or administrators. The highest paid provincial official in Ottawa is the CEO of the Ottawa Hospital.

Simpson’s analysis and conclusions are based on numerous studies and reports both in Canada and in comparison with other OECD countries where Canada does not compare well. The difficulties of intercountry comparisons are flagged. One reason is because countries use different combinations of government insurance, private insurance and self-insurance or cash payment.

Two aspects for comment are:

1. Time magazine for March 4th, 2013 devoted almost the entire issue to examining the cost of healthcare in the US. The findings are astounding in terms of the different prices paid according to whether the service is paid for by government, a patient with private insurance or a patient paying cash. I encourage everyone to read this issue. It’s relevance to Canada is that we too have a mix of these payments – provincial government, private insurance and self-insurance or cash – sometimes with all three involved for part of the same procedure.

For example, in Ontario, hearing aids are reimbursed at $500 per ear by OHIP, part by private insurance and the remainder by self-insurance or cash. The share of private insurance depends on the terms of the policy. In my case, after the $1000 paid by OHIP for two aids, it reimbursed up to 80% of $3000 which was said to be the customary charge in my area. Unfortunately my supplier charged $4000 not $3000 leaving me with $1600 to pay instead of $800.

A patient has to be aware of the terms of the insurance and then go around to negotiate a fee. This is possible in the case of hearing aids which may seldom involve a critical treatment, but for other procedures, where time may be of the essence, the patient is in a poor position to negotiate a price with a healthcare provider. It is likely that if my audiologist had been told that a competitor was ready to supply the procedure for $3000, he would have lowered his price after telling me that the competitor was a less reliable source of supply.

2. While Chronic Condition is based on published studies, inquiries and interviews, providing the reader with valuable insight and anlysis of current conditions and how Canada got there, it has almost no value as a reference source. The absence of both footnotes and bibliography means that future students of healthcare will question whether the analysis is soundly based. They will have to go elsewhere to find the sources mentioned in the book.

Why the publisher, Penguin, would publish such a flawed piece of work is a puzzle to me, unless it wanted to save the firm money. The book has an index, but this does little to aid the reader in finding the sources referred to in the text, many of which would be available online. As an undergraduate essay, the text would be unacceptable. The book can be read as an informative lengthy magazine article, but not something considered to be a reliable piece of work, which, as far as I can tell, it is, and would be accepted as such if the publisher had insisted on a different format.

Return of a King by W. Dalrymple

Return of a King by William Dalrymple, Penguin 2012

In 1839, England invaded Afghanistan for the first time in that century and then twice more over the next 80 years. The reason was British concern that Russia would move south, take control of Afghanistan and obtain a southern outlet to the Indian Ocean. If control of the land route from Europe to India was lost, then British trade with the jewel in the crown would be threatened.

The Anglo-American occupation of Afghanistan in the 21^st century is in many ways a repeat of these first three wars, although today the threat is not Russia but various terrorist gangs which reside in Afghanistan making life miserable for the West. The end result is likely to be the same today with now the American, Canadian and British troops withdrawing without leaving behind a friendly Afghan regime. (Russia was evicted a few years earlier.)

There is no Afghan regime today. Rather there is a piece of real estate called Afghanistan occupied and ruled by a series of Afghan tribes. Sometimes they cooperate and sometimes they fight each other. Outsiders who get involved have to decide which group to back knowing that these local allies may at some point turn on them. What is taking place today is a repeat of what Dalrymple writes about in Return of a King and the first Afghan war, 1839-1843.

The first Afghan war was fought by the private army of the British East India Company, not directly by Britain. On the ground this army liaised with Britain’s representative in India (which then included Pakistan and Bangladesh) who was the Governor General appointed by the British government, and later became Viceroy. Mountbatten was the last Viceroy at independence in 1947.

Dalrymple’s description is an historical masterpiece of the events surrounding the war making use of reports, letters, and diaries of those involved on both sides.  Although a listing of the principal players is provided at the outset, together with maps, it became challenging for this reader to follow who was doing what to whom, where and when. In some ways the impact of the events are lost in the amount of detail provided, and the need to continually refer back to the list of players and places.

Around the time of the first Afghan war, Gilbert and Sullivan were born. Between 1871 and 1897 they collaborated on 14 comic operas which are still performed today. Much of the comedy could have been extracted from the wartime events. Consider the following. The British army of the Indus in 1840 consisted of 1,000 Europeans, 14,000 East India Company sepoys (Indian soldiers), 6,000 irregulars and 38,000 Indian camp followers. The guns and baggage were carried by 30,000 camels with a General requiring 260 camels to carry his kit, and a Brigadier 50. The military wine cellar required 300 camels and a junior officer might have 40 servants. One regiment brought its pack of foxhounds, and its officers would have jams, pickles, cheroots, potted fish, and  pate served on tables with plate glass crockery and wax candles. Harrods and Fortnum and Mason had a good start supplying foreign markets with fashionable delicacies.

Some tribes and tribal leaders served with the Afghans and some with the British. Members of the losing side would often join the winners leaving the British at times with a bunch of losers. The brutality inflicted by both sides makes Abu Ghraib and Guantanamo look like nursery school, and harks back to the butchery of England in the 14^th century when people were hung, drawn and quartered. One just doesn’t expect this in the 19^th , 20^th and perhaps the 21^st  centuries. Women were active participants with the opposing armies but performing duties which to-day would be considered inappropriate, except perhaps by General Petraeus.  One of the best kept diaries often quoted by Dalrymple was kept by the wife of a British general. She and her husband survived, despite some unusual experiences.

Return of a King is a great read emphasizing the view that not much has changed in Afghanistan over the past 200 years, and may never change as long as tribalism survives financed by the opium consumed in both east and west.

Statistics Can Be Subversive

Introduction

The title is a play on Timothy Garton Ash’s 2009 book, Facts are Subversive.  I want to suggest how statistics are used in the public discourse on the Canadian economy often to distract, either by mistake or on purpose, from underlying economic changes.

Assume that there are three sectors (there are others) of the Canadian economy, agriculture, manufacturing and services, which is roughly how they are measured in terms of share of GDP and employment. Since 1900, the overall economy has grown as have all sectors, although not at the same rate so that their relative shares have changed.

Over time the share of agriculture in GDP and employment has fallen dramatically, although agricultural output has increased. For manufacturing, the share of GDP and of employment increased, but now both overall manufacturing’s share of employment is declining. Good paying jobs are being lost and some people are now working for less money in what were thought of as good paying jobs. This leads to the cry that Canadian workers are becoming hamburger flippers and low paid/unskilled retail employees. (In Ottawa there continue to be help wanted signs in retail outlets, which is curious when people claim to be unemployed in the same area.)

At the same time, there has been a large increase in the share of employment in services, and services output has increased. Some of these are low paying jobs and some are well paid skilled people in construction, the building trades and resource industries, computer programming, professionals like doctors, nurses, engineers and so on. Another statistic refers to the number of temporary foreign workers in Canada, about 300,000 at any one time, doing jobs that unemployed Canadians are either unwilling, or are untrained to do.

Reference to any one of these statistics provides a partial and often distorted view of the economy. Together, they start to put together a story of how the Canadian economy has and is changing. What do they suggest?

Share of labour force by sector and share of GDP (StatCan):

                                      % share of Employment              % share of GDP

 Year                              1950          1990          2012                     2012

Agriculture                      16                  3               2                           2

Manufacturing                25               66              13                          13

Services                            32               71              78                          70

In employment terms, agriculture accounts for a much lower share of total employment today than it did 60 years ago. Manufacturing’s share rose from 1950 and has since declined to about 13%, while the share of services shows a rising trend and now rests at 78% of total employment. In GDP terms in 2012, services share is at 70%, manufacturing 13% and agriculture 2%.

Less need for another udder

Agriculture

A remarkable statistic shows that in 2012 the average American cow produced 22,000 lbs of milk each year compared with 5,300 lbs in 1950, an annual increase of 5% for each of the past 60 years. I imagine a Canadian cow would be equally productive, although supply management may require it to work shorter days and take longer vacations. With 1950 model cows, today’s 33 million Canadians could be supplied with a pound of milk per day by about 530 cows. Sixty years ago it would have required over two million cows. A 2012 model cow represents an enormous increase in productivity and a saving for the environment, especially air quality.

In the agricultural sector there has been a marked increased in productivity with the introduction, among other things, of mechanization, together with animal and crop husbandry techniques. A striking contrast is the practice of Doukhobor women providing the women-power for plowing in western Canada around 1900, versus a present-day piece of farm machinery – see photos at Canadian West website, http://www.collectionscanada.gc.ca/canadian-west/052920/05292069_e.html

Fewer farmers now produce more with less, but in the 1920s, farmers worried about where their children would find work. This was soon forgotten as manufacturing grew to produce among other things the tractors, machinery, fertilizers and seeds which allowed for increased productivity. Also refrigeration and canning meant food could be stored and traded internationally. (Bananas from Central America were frozen while being shipped and then gassed to restart the ripening process. This happens today and benefits consumers with imported products.)

Manufacturing sector

As the agricultural sector grew in terms of output, it released labour for employment in the manufacturing and services sectors. Both output and employment grew. In manufacturing the share of employment is now declining especially with the loss of low paying jobs, similar in many ways to what happened previously in agriculture. The reason is a mix of competition from imported manufactured products, and the substitution of capital for labour, for instance the use of robotics on production lines. Robots substitute for labour but require inputs in order to be produced. They will tend to replace less skilled labour but in turn will require inputs to be produced and maintained.

For automobiles, the stages of production or supply chain of inputs, leading to the final product, is divided between countries, between regions of a country and between manufacturing and service sector jobs. Robots need to be manufactured, but their operation requires computer programmers and persons who will maintain the robots which are often service sector jobs.

These changes are always taking place in a dynamic economy. If they did not we would be stuck with Doukhobor plowing technology in agriculture, and a Chaplinesque Modern Times version of production lines.

Service sector

Finally, consider the service sector, where the share of employment is over 70% and growing. Some see this is as a problem and a reflection of fast food, online shopping, and call centre employment requiring less skills and liable to be outsourced abroad to low wage labour in developing countries. (Some of it is outsourced and when managed incompetently, as in the case of RBC (April 2013), gives all business a deserved black eye.)

A myriad of tasks are undertaken by service sector employees. They include highly qualified professionals who have undertaken years of training and are required to receive ongoing retraining. Doctors and dentists employ assistants who may receive lengthy training. For example a dental assistant, who does more than dental hygiene, now requires to complete a three year course. For nurses it is even longer. Developments in information technology have led to jobs for programmers at different levels of expertise. And so it goes on.

What is happening with the job-type employment numbers is that the service sector as a whole is too broad a category for useful analysis. What is needed is to disaggregate the type of service occupations, for which the data exist in the Labour Force Survey, and examine how and why the demand for different types of occupations are changing. Statistics Canada addresses some of these issues in  http://www.statcan.gc.ca/pub/75-001-x/2008109/article/10694-eng.htm

Conclusion

The contemporary cry is that the manufacturing sector is shrinking in terms of its share of output and employment, with “good paying” jobs being lost. At the same time service sector employment is growing, but these are often lower paying jobs. Forgotten is that labour productivity in manufacturing is growing because of often well paid jobs in other sectors such as services.

The fact that Canada today appears to be more a service oriented economy, at least in terms of employment, is not a bad news story, as there are well paid service sector jobs in developed economies, as well as hamburger flippers shopfloor assistants. (The latter is not as glamorous an occupation as portrayed in the TV series Selfridges, where it appears in the 1920s the assistants might work more than eight hours, as a result of having after hours work.)

The moral of this story is not to be blinded by repetition in the public discourse of one statistic, in this case the loss of employment in the manufacturing sector. Job opportunities, some well and some less well paid, in all sectors change continuously. The fact that Canada, like other developed countries, is increasingly a service economy reflects changes in production processes and arrangements in all sectors.

Adjustment is never easy especially for older and less educated workers, and is not instantaneous. Policies which can alleviate the adjustment process relate to education, retraining, use of foreign workers (temporary and permanent), job sharing, outsourcing, but not subsidies, tax incentives and protectionism, which allow existing less efficient manufacturers to remain in business….until the time comes when they will be forced out. Technology, due mainly to the internet, has undermined Canadian cultural protectionism, and something will eventually conquer supply management in agriculture…..although perhaps not in my lifetime.

Canada’s Health Care Costs – are we paying too much?

Reasons for high and rising healthcare costs in the US is presented in lay language in a 53 page special Report in Time for March 4^th, 2013, pp.18-55. Examples, and there are many, include a patient at the Seton Medical Center in Daly City, California who was charged $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85, or 6 cents each. A 64 year old patient went to the emergency room at the Stamford Conn. hospital and received a blood test (Troponin 1) for a cost of $199.50. If she had been 65 she would have qualified for government insurance, Medicare, which would have paid Stamford $13.94 for the test.

While Time gave this topic mass market coverage, the writings of Professor Uwe E. Reinhardt as reported in the New York Times for March 29th, 2013 provide more detailed analysis going back to 2000.

Canadians are told by others, and some believe that we have one of the best healthcare systems in the world. Do we and should we worry that we too are paying too much? Following is a first small step to answer this question for which there should be numerical answers. In a qualitative sense, some argue that the Canadian system is barbaric when you describe how some patients are treated.

Are individuals being overcharged in Canada in a similar way to the US, even though Canada’s per capita healthcare costs are well below those in the US, as is the case for other OECD countries? The answer has to compare how healthcare costs are calculated and covered, and where costs may be too high. In Canada, as in other OECD countries, there are three sources of payment,

-          by governments

-          by individuals covered by private insurance

-          by individuals being self-insured and paying out of personal funds.

In the US, all three sources of funding exist with the charge for a given treatment depending on who is paying for it and the actual payment depending on how forceful the patient-consumer is.

In Canada, about 70% of overall healthcare costs are covered by a government plan and 30% by private insurance and cash (or self insurance). It is a mixed public-private system, although often described wrongly as a government system along the lines of the UK National Health Service. Canadians therefore pay taxes to fund the government system, premiums to pay for private health insurance and cash for self-insurance.

Follow the money

Using Ontario as an example, the provincial government through OHIP covers some but not all medical expenditures. Private insurance, if purchased by an employer or individual employee may cover some costs, while cash provides any balance owing. The Ontario provincial government pays for hospitalization and some other medical costs, but not for drugs consumed outside the hospital, and not for dental care, or for eye glasses. For hearing aids, OHIP pays $500 per ear with the balance paid by private insurance or cash. Why drugs, eyes, ears, and teeth are not considered part of general healthcare while noses, toenails and other appendages are is a mystery to me.

The price-cost reasonableness of healthcare funded by the Ontario government depends on the efficiency with which the covered hospital and non-hospital services are provided. It is not a competitive market but comparisons can be made with other provincial healthcare services. The payer is the government funded by the taxpayers, some of whom receive the health services. Taxpayers depend on the government negotiating a good deal on their behalf with healthcare providers such as doctors and hospitals.

For privately insured claims, the terms and conditions of the policy and the coverage provided are crucial and often not fully understood until a claim is made. The policy will have an annual premium cost which the individual and/or employer pays, but the amount paid out for a claim depends on the nature of the illness and the detailed wording of the policy. For example, the policy may have an upper limit for the amount to be paid out for a particular ailment, or an amount depending on whether it is a pre-existing illness, or a geographic limit depending on where the illness occurs. Insurance companies may arrange to fly patients back to Canada rather than be treated abroad so that they can be deposited into the provincial healthcare system.

When buying a private policy or accepting one from an employer as part of a benefits package, the individual does not know how much will be reimbursed until a particular situation arises, and has no idea whether the amount charged is reasonable or not. Thus the value of the private policy is largely unknown until a claim is made and the insurer responds to it. Some information may be gleaned by canvassing those, colleagues or others, who have a similar policy.

In the US case examined in Time magazine (March 6, 2013), the hospitals engage in price discrimination. They charge different prices for different patients for the same treatment depending on who is paying the bill. For a US patient covered by government funded Medicare and Medicaid, the hospital charges a much lower rate than for a patient covered by private insurance or a self-insured patient paying cash – see above example.

What the paying patients don’t realize is that the bill presented by the hospital is the asking price for the services provided and is subject to negotiation. In many countries, but not Canada and the US, it would be recognized that the price for any good or service is an asking price where the buyer is expected to bargain, so the seller starts high. Hospitals do that in the US, probably not in Canada.

The reason the supplier, namely the doctor and hospital, get away with this is because the services are often purchased under conditions of immediate need, where the patient is in distress, and is not in a position to bargain. The hospitals are large and permanent, and the consumers (patients) are small without the knowledge of what treatment is needed. The nature of the transaction is such that patients are often not in a position to discuss costs and shop around for alternative suppliers, as they might for hiring someone to cut their hair or complete a tax return. The conditions of the transaction give market power to the supplier.

Ontario

How does this apply in Ontario? OHIP is a large buyer and assuming it works efficiently it has the potential market power to reimburse reasonable prices from hospitals, doctors and other suppliers of healthcare goods and services, similar to the way Medicare and Medicaid reimburses healthcare providers in the US. It is difficult to assess OHIP’s prowess as a negotiator. Some cross-provincial and cross country comparisons should be possible.

Conditions and payments made under private health insurance programs are more difficult to evaluate, because the policy holder does not know how the insurance company gets the information to decide how much to reimburse for each particular medical condition covered, which becomes the basis for the premium charged to the consumer. Also for a particular illness the insurance may put an upper limit on the amount which can be paid out. This provides a safety valve for the insurance company. If they also do not cover preexisting conditions, another safety valve exists, especially with an ageing population where more things become pre-existing with time.

There are all sorts of tales of people making claims on private health insurers and having difficulty in collecting, especially in the case of claims outside of the country. When travelers depart Canada, they have only a rough idea of whether a claim will be reimbursed by whom and for how much when a particular illness arises.

 

An actual example in Ontario

Consider the case of coverage for hearing aids in Ontario. The audiologist quotes $5000.00 for hearing aids in both ears. OHIP provides reimbursement of $500.00 per ear leaving a balance of $4000.00 to be paid. When submitted to the private insurer, the policy coverage is for 80% of “eligible expense”, where “The eligible expense is limited to customary charges. Customary charges are determined by any professional fee guides and average costs in your area.” The eligible expense in the relevant area in this case is $3000.00, not the $4000.00 remaining after the $1000.00 OHIP reimbursement. Reimbursement is 80% or $2400.00. In this case, the government pays $1000.00, private insurance $2400.00 and the individual via self insurance $1600.00. Note, the individual pays in three ways, as taxpayer, as purchaser of private health insurance, and with cash.

In order to be an informed consumer, it is necessary to get the necessary quote and then take it to different hearing aid suppliers to find one who offers the customary or near customary charge in the area. If they all charge $5000.00, then there may be price fixing, or you may believe it is a competitive market where all charge the same price. If all follow the professional fee guide, then the profession is aiding the provision of identical quotes and the government is assisting the suppression of competition.

 

(In a future posting, an attempt will be made to get quotes for the case cited above, which the author accepted showing that he was not an effective consumer. But consider how a person might behave if the condition was for a far more serious condition and there was no time to get quotes.)

Is Canada losing its virginity?

Angst is expressed by some because Canada’s economy is threatened as the share of manufacturing in GDP has declined, as well as its share in total employment? Manufacturing has fallen from 20% to 10% of GDP from 1970 to 2012, and its share of employment from 19% to 10% from 1976 to 2012. (Figures from Statcan). 

1.    In the past, a similar change took place with agriculture, where its share of employment has declined to less than 2% from around 20% of total employment in 1921. The latter is now lauded as a vast improvement in labour productivity due to the mechanization of agriculture, as well as improved crop growing and animal husbandry practices. Much of the surplus agricultural labour migrated to manufacturing and the resource sector, each of which has also experienced improvements in labour productivity. Today, service sector employment accounts for 77% of total employment in Canada, and some despair that we have become an economy of burger flippers and coffee dispensers, although, beware, these two are and can be mechanized further.

2.    A parallel discourse points to the difficulty employers have of filling positions in the construction, resource, and certain manufacturing industries, issues addressed with skills training measures in the 2013 Canadian federal budget. The aim is to match the unemployed with available employment opportunities. At the same time, each year Canada brings in around 100,000 temporary foreign workers, some of whom leave after doing seasonal work, but at any one time there are an estimated 300,000 in Canada as a result of those who have not left from previous years.

3.    It may be that the unemployed Canadians cannot be retrained for the available jobs, do not want to be retrained, do not want to move to where the jobs are, are not attracted by the higher earnings, are looked after by government income safety net measures, or by some combination of the above. A frequent comment is that Canadians are not prepared to do the jobs filled by temporary foreign workers. It was not so long ago that earlier Canadians were doing the backbreaking work, which forged the conditions for the various industry sectors which now flourish, agriculture, forestry, mining and assembly line manufacturing.

4.    Is the declining relative contribution of manufacturing a disaster as some suggest? Probably not. Manufacturing’s share of GDP has been on the decline since 1970 for many if not all developed countries including Canada. For Australia, Canada, France, and the UK, it is now around 10%, for Brazil, Italy, the Netherlands and the USA 15%, and for Germany and Japan around 20%. Unsurprisingly, Germany and Japan are less natural resource intensive than Canada and Australia, so their share of manufacturing employment is higher even though it too has been declining.

Source: http://opinion.financialpost.com/2012/05/29/everybodys-dutch/ ; and Statcan Cansim Table 282-0008.

5.    Each country is endowed with certain resources natural and human, which when combined with the available and affordable technology will be among the main determinants of the industry structure of each economy. Since technology is always changing, and very rapidly today, it is understandable why sectoral shares of an economy change. Technology affects sectors differently and at different rates and times.

6.    Why is the manufacturing sector declining and the service sector growing in relative GDP terms? Part of it, I suspect, has to do with the structure of firms in the sectors. Manufacturing firms have substituted capital for labour, (as agricultural f(a)irms did in the past), with for example the use of robots; and more services may now be performed outside the manufacturing sector.

7.    For example, if an automotive firm has a legal department, these personnel would be counted as part of the manufacturing sector. Assume the automotive firm decides to close its legal department and contract out for legal services, these persons will then become allocated to the “Professional category” of services. Between 1976 and 2012, this category has risen from 4% to 9% of total services employment. It would require a more detailed analysis of Canada’s labour force survey to discover whether particular jobs are today performed within a different industry as compared with previous years.

Conclusion

Saying that Canada has lost its maidenhood by becoming predominantly a service economy, like many other developed economies, is more likely recognition that manufacturing industries are adapting to improve their competitiveness.

Employment in services should not be equated only with low skilled jobs, although there are employment opportunities there.Some services employment, plumbing, carpentry, electricians, computer programming, laboratory assistants, and teachers for example, require considerable skills and skill training. Further analysis of what the 77% of the Canadian labour force labeled at services occupations and employment would answer what is happening in the Canadian economy.

 

Does an ageing population matter?

The immigration lobby and others constantly refer to the age structure of a nation’s population as being a problem. They point to a growing percentage of the Canadian population like myself which is old, leaving fewer younger people as part of the active labour force. Below I look at alternative ways to address this problem other than promoting increased immigration.

Canada is not alone. Some other countries which have managed to remain small is illustrative of alternatives. The 2013 Federal Budget proposes ways of retraining the unemployed to alleviate the skills shortage.

For illustrative purposes and not a random sample, consider three countries, all of which have experienced an ageing population over the past seven years. Between 2005 and 2012, the share of the population over 65 years old increased approximately 8 percentage points (23.9-15.4) for Switzerland, 6 for Sweden and 10 for Canada.

                                    Population mil.

                                      1990     2011

Switzerland                        6.7        7.6

Sweden                              8.6        9.0

Canada                             28.0       34.0

                         

Switzerland and Sweden have kept their populations reasonably small with increases of 13% and 5% between 1990 and 2011, while Canada has increased its population 21% over the same period. There are ways to prosper economically without large increases in overall population, even if the population is ageing. What are these alternatives?

1. First, it is useful to have a population policy, which Canada does not have. The private Population Institute of Canada is one place which studies these issues. Canadian governments and political parties have shown little interest in discussing the overall size, rather than the age structure of the population, where most assume an ageing population is a problem.
2. Consider WW2 when men were conscripted into the forces and their places in the workforce (factories etc) were filled by women and even youths helped out on the farms – as illustrated by the British TV program Wartime Farm. Today a larger percentage of women are already working, but this could be increased if the wage/salary incentives were there. Increased wages and salaries would attract more labour of both sexes to the work force.
3. The customary retirement age, say 65, is not fixed in stone. It can be altered in a number of ways. When I retired, my contract with the university required me to retire from the university at 65. It no longer does so for existing faculty. It did not require that I stop working at 65, and I carried on in related areas, as many do who retire from government, business and elsewhere. There is life after 65 and with it an increased supply of labour. Living longer and inadequate pensions are an incentive to continue working.
4. Ages for receiving pensions and other benefits can be altered so that people have incentives to work longer.
5. With communications technology, many types of work can be outsourced, not just abroad, but to people in their homes, so that both the size and flexibility of the workforce are enhanced. Some people will be prepared to work longer if the convenience of working is increased. A 40 hour work week may exist for certain service sector jobs, but as a result of people texting and talking on various devices at all hours of the day (and night), many office workers and professionals are already working far more than 40 hours a week, thus increasing the input and output of the existing workforce.
6. Outsourcing abroad is another way of expanding a country’s workforce. An alternative is to permit the entry of temporary foreign workers which Canada already does. The number of temporary workers, especially live-in caregivers and seasonal farm workers, entering Canada each year has doubled from 100,000 a year in 2003 to almost 200,000 per year in 2011. In 2011 there were about 300,000 such workers in Canada, consisting of those who entered in 2011, and those who entered in previous years and have not departed (CIC figures as reported in the Ottawa Citizen, Nov. 6, 2012, p.5).
7. Adjustments can be made as to whether these workers can then apply to become permanent residents. Note, Singapore has a closely monitored policy of bringing in foreign workers and requiring them to leave if they are no longer working. I suspect Switzerland may do the same.
8. Substituting capital for labour is a way of making better use of an existing labour force. It has already occurred in many industries, agriculture being a prime example. Today, the share of the labour force in agriculture is around 2% down from 25% in 1941. The loss of manufacturing jobs in Ontario and elsewhere, such as in the automobile industry, is less due to the shrinkage of the industry and more to the introduction of automation.
9. In the service sector, communications technology has introduced labour saving methods of production in industries such as banking and related financial services, publishing (books, newspapers and magazines), television, movies, music, online shopping, defense and security activities. More can be done with the existing number or with less people, although retraining will often be required, but this has had to happen before.

Conclusion

Increased immigration is one but not the only way to deal with an ageing population. It ignores the alternatives that exist, how this is dealt with in different countries, and what other measures can be taken in Canada. It also requires addressing what size of population Canada is attempting to achieve and the alternatives for achieving it. One possibility is tax incentives for increasing Canadian birth rates. At the same time, there is a need to examine the other consequences (costs and benefits) of an enlarged population.

Vatican Inc.

 

Twenty-five years ago, Gillian Zacharias wrote an outstanding MA thesis for the School of International Affairs at Carleton University comparing the Catholic Church, its organization and management, to that of a multinational corporation. The thesis provides a background for current developments taking place at the Vatican head office, where the Cardinals have elected a new Pope, and in the Catholic Church throughout the world, where its subsidiaries are offering competing brands of the dogma of Catholic beliefs. Recent events suggest how a corporate type analysis helps in understanding what is going on.

Selecting a Pope

Prior to March 13th, 2013, much of the focus was on which of the voting cardinals would get two-thirds plus one of the eligible votes to become Pope. The 38 cardinals over 80 are disqualified from voting, although the newly elected, Cardinal Bergoglio, to be known as Francis I, at age 76, will likely lead the organization well into his eighties.

The voting was rumoured to be split between supporters of a Cardinal with either conservative or ultra conservative views. None were in favour of women joining senior management by becoming either Pope, Cardinal or Bishop, although some candidates suggested that there is room for women to take a greater role in the church. The glass ceiling of the Sistine Chapel appears to have none of the cracks which have appeared in public corporations. This means that the church, in its marketing, could alienate about half the people who might consider their religious brand. On the other hand, it does appeal to a niche market, males, who make up the other half the world’s population.

In Europe and North America, Catholicism is losing market share against competing religions, while in Africa and Latin America it is gaining members. The head office remains in Rome, which is understandable as the Vatican is recognized as a state, but Europe with 24% of the world’s Catholics has 34% of the cardinals – Italy alone has 28 cardinals and the rest of Europe 32. Meanwhile, Latin America has 41% of the Catholics and 11% of the cardinals. The fact that Francis I comes from Argentina may help to correct this. Due to sunk costs, I doubt the head office will be moved.

Head Office

One group of cardinals lives and works in the Vatican where they get to know each other, while those who travel to Rome, if they decide to run for office, or if they want to lobby for a papal candidate, have a harder job campaigning. In this sense, the church is more like a government or exclusive club than a corporation, as in the election of a pope the shareholders/church members have no say, leaving it to the present Cardinals, who have been appointed by former Popes to act as the electorate for a new one. The voting procedure is closely monitored and the ballots burned so that there is no direct way to undertake a recount.

Troubling Times

Headlines involving the Vatican in recent years include the relationship which priests have with each other, with young boys, women, and with members of their congregations. All this makes for salacious reading, which receives public airing and sometimes, but probably not often enough, leads to the disciplining of priests. In an era of social media and the willingness of insiders to leak information, which then becomes public knowledge over what has happened and how the church has responded, the church can no longer hide the facts. Social media has also allowed victims to liaise with each and to coordinate their responses. The message goes viral.

The other public relations disaster which the church has had to deal with relates to financial management or mismanagement, a situation not unknown to private sector firms. Publicly traded firms are forced to have published annual audits undertaken by independent auditors. Accounting firms and elected directors can be sued for releasing misinformation and carry insurance to limit their legal liability. (I don’t know whether church executives carry such insurance).

No similar disciplining forces relate to the Catholic Church (and similar religious organizations of other faiths) which are usually treated as charities for tax purposes, and where the Cardinals as senior managers are appointed by the Pope as CEO, who in turn is elected by the Cardinals. Charities are given tax breaks and do not make profits, however in any year their income may exceed their costs in which case the surplus (profit with a fairer name) can be used to construct buildings like the Sistine Chapel and support  lifestyles, not unlike executive perks in the private sector. Their surroundings and way of life becomes difficult for ecclesiastical management to explain to their congregations, especially those in poor countries in Africa and Latin America. Francis 1 may be an exception, as he chose to live in an apartment not the available palace in Buenos Aires, and he is a strong supporter of an Argentinian soccer team.

The dubious financial dealings of the Vatican have arisen a number of times. An example from the eighties involved The Institute for Works of Religion, known as the Vatican Bank, located inside Vatican City and managed by a CEO who reports to a committee of Cardinals and ultimately to the Pope

“The Institute was involved in a major political and financial scandal in the 1980s, concerning the 1982 $4.7 billion collapse of Banco Ambrosiano, of which it was a major shareholder. The head of IOR from 1971 to 1989, Archbishop Paul Marcinkus, was under consideration for indictment in 1982 in Italy as an accessory of the bankruptcy; however, he was never brought to trial due to the Italian courts’ ruling that the priest, being a high-ranking prelate of the Vatican, had diplomatic immunity from prosecution. As a private organization performing banking-like functions for religious institutions, it is not subject to public scrutiny.”

http://en.wikipedia.org/wiki/Vatican_Bank

Subsequently, Roberto Calvi, President of the Bank, was found dead hanging under Blackfriars Bridge in London. The week before, his secretary, after denouncing him, committed suicide by jumping from a window in Rome.

A balance sheet

In one sense the Catholic Church has substantial assets in terms of the buildings and furnishings at the Vatican, and throughout the world. Assets also include the goodwill it has generated over time, although adversely affected at times. Its liabilities include, amongst others, any outstanding debts from borrowing and for claims resulting from court cases.

However there is a problem with the tangible assets. If the Vatican or parts of it are put up as a guarantee to a lender, that lender may realize the difficulty posed if foreclosure is necessary. This arises for any church or historic building which offers its buildings as collateral for a loan. Tangible assets exist but may be difficult to use as in order to raise money.

Conclusion

As the earlier research discussed, many aspects of the Catholic Church are similar to those found in a profit driven multinational enterprise. It also has aspects of a political organization or club with its voting and appointments procedures. A combination of economic and political analytical tools helps to explain its operation.

While it is easy to focus on the church’s scandals past and present which make for good reading, Catholicism has been around for 2000 years, and as an organization it has outlasted governments and corporations by centuries. One indirect comparison is the British Empire which lasted for about 500 years, but was only a major world force for about 20% of this time. If anything, the Catholic Church is a survivor, and while it might benefit from learning how corporations operate, the reverse may apply and corporations learn from the Church’s survival in competition with other major religions.

Does Canada have a real estate bubble?

Knowing what happened when it burst in the US, Ireland and other countries, one question is whether Canada has a real estate bubble in its urban markets. Carney and others say (hope) no, but he keeps interest rates low, encourages spending and warns people not to go into debt.

“The Economist thinks Canadian housing is overvalued by a third relative to income. The Fitch ratings agency pegs the overvaluation at 20 per cent.

To be sure, Mr. Carney no longer sounds as worried about a housing bubble as he did last year. On Wednesday, he indicated that repeated warnings by him and Mr. Flaherty may be scaring Canadians straight, curbing their appetite for debt. But both men are up against history. When property prices get this frothy, pendulum swings are more likely than soft landings.

Such is the pickle in which Mr. Flaherty and Mr. Carney…find themselves. Their risky experiment in guiding Canada through the recession by stoking housing demand is threatening to come undone. Household debt (largely the result of ever bigger mortgages) remains much higher in Canada than it was in the U.S. just before the 2008 crash. It wouldn’t take much to turn a vulnerability into a calamity.”

http://www.theglobeandmail.com/commentary/oh-those-house-crazy-consumers/article9378240/

When a financial bubble bursts, wealth decreases with the fall in expenditure on real estate and other products, and a general recession. What are the facts about housing prices in Canada?  The source is http://www.housepriceindex.ca/Default.aspx

The index for Canadian cities shows that, from mid 2005 to the present, real estate prices have risen:

Approx av.per annum %

Toronto       46%        6.6

Ottawa        41%         5.9

Calgary        61%         8.7

Vancouver   62%         8.9

If that was the annual rate of inflation for all goods and services since 2005, it would be cause for concern. Should it be for housing?

Looking outside of Canada, when times get tough, foreigners put their money in gold, Swiss bank accounts and real estate in a number of countries. This is especially the case for buyers from developing countries and places where there is less security. North America and in the past Europe have acted as depositories for such foreign funds.

Is this the case now? And are Chinese and other foreign investors inflating the Canadian real estate market? There is plenty of wealth in the Middle East, India and other parts of SE Asia besides China. Australia appears to think that there needs to be some control on foreigners buying real estate if they don’t intend to live there. So far Canada has made no such moves. Should they?

China’s Potemkin cities, built for several million inhabitants, but remaining empty or ghost cities, provide an example of the vagaries of real estate investing, which may have some relevance for Canada. These cities, which the Chinese government finances in order to maintain investment spending, are to westerners the result of unusual policies. Chinese however appear willing to invest in ghost cities without much (any) hope of renting, selling or living in their properties. If they buy under these conditions, why would they not invest in Canadian real estate also?

Well, according to their own government they are not allowed to, but this appears to do little to curb the ways found to circumvent these rules. Add to that the wealth of investors in India, the Middle East and other parts of Asia and the real estate buying pressure from foreigners is added to that of already free spending Canadians.

My strong impression is that we do have the makings of a real estate bubble, and the cocktail circuit in Canada confirms it. There people are boasting about buying condos as investments even though rental rates don’t cover the costs at present, and will be even harder to justify when interest rates rise and prices fall. Foreign buying adds to this upward pressure on prices.

When will Starbucks require PhDs?

Consider the following news items:

1. Bachelor degree, a requirement for filing clerks
2. A higher percentage of those aged 18-24 enrolled in post secondary education
3. Grade inflation in Ontario high schools
4. Proposals to increase university enrollment

Alone each fact tells a particular story. Together they point to a malaise in the educational system and a failure to adjust to labour market conditions. This is the market in which our children and grandchildren will earn their living.

1. More jobs are advertised today with an undergraduate degree as a requirement. This could be due to a combination of existing and new jobs needing more education, and/or a glut in the labour market (higher unemployment) allowing employers to ask for more education.

http://economix.blogs.nytimes.com/2012/12/04/degree-inflation-jobs-that-newly-require-b-a-s/

Other studies show that those with more than one degree have a significant lifetime income advantage over those with one degree – See “Can the Middle Class be Saved?” Atlantic, Sept. 2011.

2. The proportion of those, age 18-24, attending post secondary institutions has increased significantly over the past 30 years. This is a result of expanding the places available in universities and community colleges. As long as standards remain unchanged, then the increased enrollment means that more qualified students can now attend these institutions. However, if standards are lower then, less qualified students are being enrolled. The latter seems to be the case.

3. The screening mechanism for Ontario students applying to attend universities is the grade 12 course average received. These grades are assigned by each school. Averages in the 90’s are not uncommon and many universities in Ontario have a cutoff point in the 80’s. There is a strong incentive for schools to assign high marks in order that their students will be accepted into universities. Parents, students and their teachers have an interest in these higher grades and grade inflation has occurred since the removal of the standardized test.

In the 1960s, Ontario high school students wrote a standardized test in their final year. Those who scored 80% were named Ontario scholars and received a cheque for $100. By the 1970s, the standardized test was abolished and today each school grades its own students. Teachers warned that grade inflation would ensue and it did. From less than 20% of students being Ontario scholars, the number rose to 40% by 1980 to 60% in 2010. When it is suggested returning to a standardized test, teachers and principals oppose the move, because they feel their teaching and school is being evaluated, which it is. But the grades attained are a result of both the quality of teaching and the caliber of the students.

When students move to first year university, there is often a drop in grades and sometimes failure. Some argue that first year university has become an extension of high school, as students are required to do remedial work to come up to university standards. This tends to make the undergraduate degree less valuable and reinforces the view that at least two degrees are necessary to prosper in today’s workforce.

4.  Those, often politicians, who propose expanding the size of university enrollment would aggravate the present problem due to the absence of standardized high school exams, grade inflation leading to the waste of university resources, and the demand by employers for credentials where previously they were not required. For a list of studies of grade inflation in Ontario see http://en.wikipedia.org/wiki/Grade_inflation#Ontario

Thinking about the future

As of 2013, topics of public discourse about the global future include a number of issues, discussed briefly below in no particular order of importance. Many are interrelated and relate to the outlook for future generations

Global population

Estimates of the global population are about one billion persons in 1800, two billion in 1920, four billion by 1980 and seven billion today, doubling first in 120 years, again in 60 years and almost again in 33 years. Many of the front page issues today are the result of growth in the world population, which receives little public attention except by certain groups.

Discussion requires dealing with issues like birth control, abortion, infanticide, hunger, starvation, disease, the size and growth of national populations and many issues which people often feel uncomfortable to publicise and discuss.

Age structure of populations

Countries and societies face different issues according to their population age structure. A pyramid structure with too many young people may cause youth unrest due to unemployment, as exists in a number of developing countries. An inverted pyramid, like Japan, has different problems, such as too few active people to support a high percentage of older people. One is not more of a problem than the other. They give rise to different issues, youth unemployment in one case and support for the elderly in another. As a country’s future age structure can be estimated, policies can be implemented ahead of time.

Take the Canadian example where an ageing population is forecast. This can be mitigated by people working to an older age, full and partime, pensions paid out later, emphasis on retraining of unemployed and others where there are likely to be shortages, immigration of those with required skills, use of temporary foreign workers, outsourcing of work abroad, or domestically to people able to work at home, and the substitution of capital for labour. Numerous adaptations can be made and were made for example in wartime – see the TV program Wartime Farm on TVO which shows the adaptations which occurred in the UK during WW2.

Immigration

The crossborder movement of people involves tourists, short term visitors such as foreign students, seasonal workers and permanent residents. The last are usually on the track to become citizens. Another category of migrants includes refugees. Problems arise when short term visitors do not leave the country and become illegal immigrants or visitors, and are often exploited by employers.

The supply of migrants arises as people in poorer countries attempt to improve their circumstances by moving to richer countries, or try to escape from violent situations. The receiving countries may provide incentives to attract people with certain types of skills. Unlike the past, migrants now find it relatively inexpensive to travel home and to communicate with their families. They also send remittances home which become a way of richer countries paying for the valuable resources taken from poorer countries.

National immigration policies act as filtering mechanisms and are often accompanied by policies which assist in integrating newcomers into the society, referred to as multiculturalism.

Warfare and Terrorism

Global warfare during the first part of the 20^th century has been replaced first by local wars, and now instances of terrorism which have come to the fore since 9/11.  In the early part of the 20^th century armies were still equipped with horse ridden cavalry and engaged in trench warfare. This was found to be expensive in terms of equipment and manpower (and animals) and the nature of warfare changed. Tanks, artillery, naval and air power began substituting equipment for military personnel.

Note that even in the 1940s the Japanese invaded and occupied Malaya using bicycles; the German army advanced into Holland, Belgium and France using horses and bicycles as well as motorized equipment. The armoured blitzkrieg which subdued Poland was accompanied by infantry on foot. Today the use of drones displaces troops with boots on the ground.

Terrorism as warfare changes the nature of war and the rules which are supposed to govern it. The original so-called rules envisaged national armed forces lined up against each other with someone at the national level in charge, willing to declare war, accept surrender, sign treaties and abide by their terms. This never happened in a clear-cut way and so the first world war morphed into a second one, followed by the Cold War and regional wars like Korea, Vietnam, Algeria, East Africa and so on. This, in turn, has morphed into guerrilla warfare and terrorism as in Ireland, East Timor, and currently the actions of terrorists, Islamists and others in North Africa and the western Mediterranean. The proliferation of nuclear weapons by rogue states or groups within those states such as North Korea and Iran has become a basis for state terrorism.

Human rights

These include a multitude of issues, prominent among them globally are the rights of children, women and aboriginal people, many of whom have not experienced the political and economic benefits enjoyed by others. While today more people live within democracies and have a higher standard of living than in earlier times, there are still many people living in abject poverty in the least developed countries, as well as the existence of poor people in richer countries. Hong Kong is among the countries with the highest per capita income in Asia, but has poor people living in wire cages stacked on top of each other.

Deficits and debt

Fiscal deficits and debts are present and future problems for governments and individuals. At present they are less of a problem for many corporations, which are holding unprecedented levels of cash and short term securities, as a result of cost cutting and unwillingness to make major new investments due to global economic uncertainty.

Increasing deficits lead to rising debt levels which at present governments and individuals can finance due to low interest rates. But if rates rise, then governments will have to cut back on program spending, which they are already doing, or go further into debt or default which Iceland did and Greece nearly did.

Individuals face similar problems. For example, with low interest rates they borrow more, often using as collateral the inflated cost of housing. When the housing bubble bursts, they cannot finance their debt and are forced to reduce other expenditures or default on their debt payments.

Deficits arise from the annual flow of expenditures exceeding incomes, leading to an increased stock of debt which is sustainable only as long as the payments on the debt can be made. As governments and individuals cut back on spending, the adverse consequences flow to other parts of the economy leading to a general downturn.

When the depression of the 1930s ended, it was associated with a world war which caused unemployed men to be employed in the forces, women filling their places in the civilian workforce, and a general economic upturn as wartime production was ramped up. The present global recession is less severe than the 1930s, but it is as well to recall what circumstances caused the economic turnaround in the 1940s.

Income inequality

This occurs within a country where a few people hold a disproportionately large amount of the wealth, or earn a disproportionately large amount of a country’s income. When carried to an extreme, the sense of unfairness, if not remedied by the political process, can lead to some form of revolt. In western democracies, income inequality has been growing over recent decades. Signs of revolt are present in European countries like Greece, Spain, Italy and France. Students have protested against fee increases in the UK and Canada (Province of Quebec).The “occupy movement” took place in the US, and the Tea Party branch of the Republican party is a protest movement, as are aboriginal protests in Canada. Use of the internet and social media facilitate the coordination of protest movements.

Healthcare

Healthcare costs are continuing to rise due to a combination of an ageing and longer living population in some countries, reduced infant mortality and technological change, which has improved the delivery of healthcare services for some. For many governments, healthcare costs are taking a rising proportion of total revenues with older people responsible for much of the increase.

As with population growth healthcare becomes a difficult issue to discuss because it has intergenerational features. The idea of rationing healthcare for the aged or for any group of persons is a sensitive issue, for example should hip, knee and shoulder surgery for people over a certain age be paid for by the state. Young people would probably say no, at least before remembering that they are going to get older.

The environment

Over the past half century, the environment has become a widely debated issue. Part of the discussion relates to the impact of human activity on the environment and on climate change. Another notes the fact that earth is currently in the fifth ice age,

“During the most recent North American glaciation, during the latter part of the Wisconsin Stage (26,000 to 13,300 years ago), ice sheets extended to about 45 degrees north latitude. These sheets were 3 to 4 km thick.

This Wisconsin glaciation left widespread impacts on the North American landscape. The Great Lakes and the Finger Lakes were carved by ice deepening old valleys.”

http://en.wikipedia.org/wiki/Ice_age

Current evidence shows the melting of glaciers and ice packs in the Arctic and Antarctic regions. The cause of the warming is debated, as will be cooling of the planet’s temperature, which will almost certainly follow centuries hence.

Energy sources

The industrial revolution from the 1800s was driven in part by the substitution of various sources of mechanized energy for human labour. The first industrial revolution lasted until about the mid 1900s  (some divide this period into a first and second industrial revolution.) Since around 1950, a new industrial revolution has emerged associated with nuclear power and developments in communications technology amongst other factors.

The demand for petroleum (oil and natural gas) has increased markedly as more countries and regions of the world have undergone economic development. But because of the environmental effects of coal and petroleum based energy sources, alternative cleaner energy is being developed. The alternatives are well known, wind, solar and water including tidal, being amongst the more prominent. While these receive much attention, the possibility of organizing manufacturing and service activities in an energy saving way also provides a means of making existing energy supplies last longer.

Education

If the foregoing includes some of the major issues affecting current societies, what type of educational experience should young people be offered. I suspect a greater emphasis on maths and science or a stronger grounding in these areas will benefit future students. Life long learning will be needed to permit people to adapt to a rapidly changing workplace. At the same time, distance online learning will provide the flexibility for people to study at home without having physically to attend an institution.

Conclusion

The foregoing laundry list of issues will require involvement by governments which will increase their role, and at the same time generate further problems. Reliance on centralized government bureaucracy, expanding entitlements, and the rise of interest group politics to defend the entitlements may undermine future economic growth.