Governments cannot Create JoBs

Lessons from Abroad

Canada can learn much from the experiences of other countries who have faced similar challenges as we have. Two countries that have employed bold and creative public policy solutions to problems of economic stagnation and leveraging public dollars for maximum effect are Ireland and Sweden.

Lessons From Ireland

In the 1980s, Ireland, a country of 3.6 million, had an unemployment rate of 18%. Its economy was based mainly on farming and natural resources and it was suffering a significant brain drain to other parts of the world.

In 1987 Ireland chose a new policy direction. To that point, it had tried the usual state-led development policies, largely without success. Its new direction saw it cut corporate income taxes very deeply, to only 10 per cent. This initiative was coupled with a renewed commitment to developing its human resources via education and training. Yet the overall participation of the government in the economy fell dramatically, from over 50 per cent of GDP to less than 35 per cent of GDP.


This multi-pronged strategy was in recognition of the international mobility of capital which Ireland desperately needed to kick-start its economy. It was helped by its membership in the European Community, which was moving towards a unified market. Ireland saw itself competing directly with Great Britain for those companies that preferred an English speaking country from which to do business.

The effect has been dramatic. More than 1,000 foreign companies have chosen to locate in Ireland and corporate tax revenues are more than 100 per cent higher than in 1990. Ireland was successful at increasing its growth rate to an average of 8 per cent over the last decade. By a commonly used measure (purchasing power parity exchange rate, PPP), Ireland’s per capita income now exceeds that of Canada. All this was accomplished from a fairly limited resource base. Unemployment, which was twice the Canadian rate is now about 3 percentage points lower than in Canada. Government spending still accounts for more than 1/3 of the economy, but it is highly focused on building human capabilities to compete in the global economy, and not on subsidizing dying industries.

Ireland shows what is possible by redefining the role of government in the economy.

Healthcare Reform: The Swedish Model

Healthcare consumes upwards of half of provincial government budgets (topped up by federal transfers). The reform of the healthcare system is therefore incredibly important to determining the overall effectiveness of government intervention. Yet healthcare reform in Canada remains stagnated by an ideological deadlock between people who would like to see more private care and others who want to see the current system funded at a higher level.

Sweden shows how a public commitment to healthcare need not be at odds with greater private participation to improve efficiencies. Sweden was one of the first countries to nationalize its healthcare system. By the late 1980s, however, the system proved unsustainable, groaning under the weight of overstaffing.

Sweden went through a severe recession in the early 1990s, making reform of the healthcare system a critical component of its overall need to deal with its budget deficit problem. Sweden had "hit the wall" in terms of its ability to continue to fund its commitments under current mechanisms. This created the conditions for radical surgery of Swedish healthcare.

Today, the Swedish government continues to pay for healthcare (the so-called single payer system). Yet it has greatly liberalized the supply side allowing private providers to compete with one another for limited public funds. In other words, the government can fund a particular service without actually having to run it. For example, having the government fund health care that is actually delivered by competing hospitals and clinics introduces a built-in incentive system for better and quicker service for patients, better efficiencies, and less waste. Those providers that cannot do this fall by the wayside.

In the case of Sweden, not surprisingly, there has been a considerable improvement in the productivity of the Swedish healthcare system. Although the idea of "productivity" in healthcare may strike some as strange, the effect is to achieve things that people care about, like reductions in waiting periods and improved treatments. By saving resources on the many mundane treatments administered in the healthcare system, the Swedish system has generated more resources to take care of its population. This is the human face of healthcare reform. All this has taken place without any change in the universal insurance coverage that is valued by the Swedes (as it is by Canadians).

For Further Study

Books

Taking or Making Wealth

Goodbye Canada?

Secrets in High Places

On the Money Trail

Down the Road Never Travelled

Videos

Secrets in High Places

Canada’s Brain Drain

The next module in this course is an examination of what Canada’s debt spiral means for all of us.