Low outlay for labour, benefits cited for ranking
Report analyzes cost of operating in 11 countries

Neco Cockburn
Business Reporter

Despite a rising dollar, Canada remains the cheapest industrialized country in which to do business, according to KPMG.

Lower labour and benefits costs are the main reasons Canada is the most cost-competitive of 11 countries, the consulting firm said in its 2004 “Competitive Alternatives” study, released yesterday.

“Canada means business when it comes to promoting our country as the global business partner of choice,” International Trade Minister Jim Peterson said at a news conference.

Australia finished second, while Japan and Germany are the most costly countries.

It’s the fifth consecutive time Canada has ranked Number 1, although the gap between it and the United States, which finished seventh, has decreased.

The study found startup and operation costs for small and medium-sized businesses in Canada are 9 per cent lower than in the United States. In 2002, the last time the study was conducted, costs were 14.5 per cent lower in Canada.

Although the change results mainly from a weaker American dollar, the study’s co-author said Canada’s advantage would remain even if the loonie were worth more than 90 cents (U.S.).

“The Canadian cost advantage is very robust in terms of not being all that sensitive to the changes in the U.S. dollar,” said Stuart MacKay, president of MMK Consulting in Vancouver.

The Canadian dollar was pegged at 75 cents (U.S.) for the purpose of study calculations. It closed at 75.48 cents yesterday, down 0.83 of a cent, and has risen about 15 per cent in a year.

Analysts say the findings don’t mean fingers should be crossed for an extremely high dollar.

“I think we’ve already seen that there are a number of industries that have faced a very real competitive threat, even from the move (dollar’s rise) over the past year,” said Doug Porter, senior economist at BMO Nesbitt Burns.

“I think if we actually did have the currency move up into the 90s, there would be sectors in the manufacturing industry that would be in serious jeopardy,” he said. “I doubt that all of Canadian industry would be anything close to comfortable with a currency of above 90 cents.”

Labour costs and benefits, which accounted for 56 to 85 per cent of all location-sensitive costs in the study, are major reasons for Canada’s competitiveness.

The study, which reported all figures in U.S. dollars, found the average labour cost in Canada was $50,919 (U.S.), compared with $63,379 in the United States

But if the Canadian dollar rose sharply, Porter said, it would “tend to erase that labour cost advantage.”

KPMG’s eight-month study looked at 17 industries in the Group of Seven countries” Canada, the United States, Britain, Italy, Japan, Germany and France. Australia, Iceland, the Netherlands and Luxembourg were also included. Canada was the lowest-cost country in nine of those industries, which included aerospace, biomedical research and development and pharmaceuticals.

Consultants looked at the cost of starting and maintaining a business for 10 years, taking 27 factors into account, including land and offices, salaries and benefits, utilities, financing, taxes and transportation. The countries were then compared with the United States, which acted as an index.

For example, a startup software company with revenue of $14.2 million might have annual costs of $12.7 million in the United States. The same company could expect to spend $11 million in Canada and $14.6 million in Japan.

The study found Canada has the lowest electricity cost, at 6.3 cents per kilowatt hour, compared with 15.7 cents in the Netherlands.

Canada ranked fifth lowest in natural gas costs, and third in telecom costs.

The study also analyzed the cost-competitiveness of 30 large international cities. Toronto finished third behind Montreal and Melbourne.

The study didn’t look at other factors that affect company decisions, such as business environment, cost of living or quality of life. It also omits security, legal issues and government incentives.

KPMG released similar reports in 1996, 1997, 1999 and 2002. More than 60 sponsors, including international governments, corporations and consulting firms backed this year’s study.

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By Benjamin R. Barber
Benjamin R. Barber, a professor of political science at the University of Maryland, is the author of “Jihad vs. McWorld” (Ballantine, 1996) and other books.

Social Security privatization has been vigorously challenged on both economic and technical grounds. It has been said again and again that privatization increases risk for prospective retirees without solving the long-term Social Security financing shortfall (if there actually is one). It has been argued that privatization is merely a scheme to divert money from the Social Security trust fund for speculative stock market investments. And it has been noted that it creates new costs (portfolio management, government oversight) without being able to guarantee workers future retirement benefits.

Yet the most profound cost of privatization has been wholly ignored: the systemic cost to our public way of life. By turning a public social insurance and pension policy into a private bet in which personal and private decisions determine who does well and who does badly, we do irreparable harm to our democratic “common ground.” After all, one of this nation’s greatest public goods has been its promise to give every working family a guarantee of support at retirement, or in case of disability or death. This promise, offered to all citizens, wipes away all the distorting traces of class, race and gender that often play out so dismayingly in the private realm. You cannot simply take justice out of the public realm and put it into the private realm without fundamentally weakening the democracy on which the very possibility of justice depends.

Conservatives ought to recognize even more quickly than liberals that privatization — whether of education, housing or Social Security — makes us less of a public. It diminishes the republic — the res publica, or public things that define our commonweal. It turns the common “we” into a collection of private “me’s.” It opts for market Darwinism, in which smart investors prosper but others lose, rather than social justice as its organizing principle. It demeans the “us” by turning “us” into “it” — the big, bad, faceless government bureaucracy. And it privileges the private and individual by appealing to market liberty, as if people could really be free one by one or as consumers alone.

Private market liberty is not political liberty; it is only personal choice. It may generate private benefits (“I want an SUV!” or “Give me 100 shares of EBay!”) but offers nothing for the common good (a fuel conservation policy, for instance). It is as citizens that we pay our Social Security taxes, and it should be as citizens that we enjoy the fruits of our labor.

Yet privatization tries to convince us that the consumer is simply another, more efficient, form of the citizen. The citizen who votes with her dollars rather than her ballots. But dollars don’t deliberate. They don’t seek common ground. They are not bearers of empathy and imagination. As education consumers in Chicago or Washington, we can select the “best schools” for our children, but as citizens we need public schools that help make us all public citizens. As consumers in Los Angeles, we can choose among hundreds of automobile models, but only as citizens can we make the choices that create a public transportation system serving all.

Privatization is a kind of reverse social contract: It dissolves the bonds that tie us together. The social contract takes us out of the state of nature; it asks us to give up a part of our private liberty to do whatever we want in order to secure common liberty for all. Privatization puts us back in the state of nature where we possess the natural power to get whatever we can but lose the common power to secure everything to which we have a natural right.

Private choices rest on individual power and skills and on personal luck. Public choices rest on civic rights and common responsibilities. With privatization, this administration is trying to seduce us back into the state of nature, where the strong dominate the weak and anarchy ultimately dominates the strong and the weak, undermining security for both. Under these conditions, Thomas Hobbes reminds us, we are perfectly free to do as we choose, but as a consequence we live lives that are “solitary, poor, nasty, brutish, and short.” Not an ideal recipe for social security.

The Social Security entitlement should not be toyed with and altered in accord with today’s economic fashions. It is an emblem of civic membership and a reflection of the benefits that come with the responsibilities of citizenship. For us as individuals, privatizing Social Security is probably a bad bet on technical grounds. But for us as citizens, it is a certain disaster. As prospective retirees and private consumers we may want to argue about it, but as citizens, if we care about our democratic republic, we are bound to condemn it.

Alberta Premier Ignores Evidence that For-Profit Care Costs More
Globe and Mail Update
January 21, 2005
by Tammy Horne

Alberta Premier Ralph Klein has just unveiled the province’s latest health reform plan. He proposes a “third way” for Alberta’s health-care system, based on experiences of other countries around the world. He is especially interested in expanding private payment and for-profit delivery of health care. In his recent Calgary speech to the Canadian Club, Mr. Klein lauded a local for-profit operation, the HRC surgical clinic, while downplaying its higher costs to taxpayers. He said Alberta will not violate the Canada Health Act, but will encourage the health care sector to test its boundaries. Mr. Klein has consistently argued that Albertans be allowed to pay for faster hip and knee surgery at for-profit clinics. He also supports user charges within the public system. Federal Public Health Minister Carolyn Bennett and Ontario Premier Dalton McGuinty are correct to be skeptical of Mr. Klein’s vision. There is no evidence from other countries that suggests health care in Alberta or other Canadian provinces would be improved by allowing private sale of surgery,public-system user charges, or for-profit delivery. For instance, Premier Klein believes letting people buy private care will shorten public wait times.

A recent review from the University of Toronto concludes that parallel private systems in Britain and New Zealand have created longer public wait times. Waits only get shorter for those people who can pay to jump from public queue to private tier. Even in Australia, where private insurance is government-subsidized, the private system has not reduced public waits for most procedures. Australia’s private tier costs taxpayers $1.5-billion (Australian) a year. Canadian and Australian health economists, led by those at McMaster University, conclude that if that money had gone to hospitals, half to two-thirds of private demand could have been met in the public system.

Even without insurance subsidies, private parallel systems have extra administrative and regulatory costs. Health economist Robert Evans of the University of British Columbia explains that single-payer systems, such as Canadian medicare, control costs better than those with a public-private insurance. The McMaster team argues that private care can only save public dollars if the public system is allowed to deteriorate. Otherwise, people will not choose private payment over public services. The researchers also note that patients incurring complications on the private side use the public system for follow-up treatment, and private and public systems compete for scarce health professionals. The bottom line is this: Parallel private systems are costly for governments, businesses and individuals. A 2002 KPMG survey found Canada has the lowest business costs of nine countries, and universal health care is a key factor In controlling private benefit costs.

If Alberta allows a private-pay tier, and it leads to longer public wait times as in Britain and New Zealand, employees will demand insurance coverage to buy private care. And individuals without employer coverage may feel compelled to buy insurance or pay directly for care. The second type of private payment is user charges within the public system. Sweden has been promoted as a success story because it caps total user fees paid by patients each year. However, Swedish researchers conclude that fees discourage Swedes, especially the poor, from making timely doctor visits. This is consistent with research in other countries and in Saskatchewan, before doctor and hospital fees were dropped and eventually outlawed by the Canada Health Act. McGill University researchers recently found that Quebec’s drug-fee increases in the 1990s lowered use of essential drugs and led to poor health outcomes. This suggests we should eliminate existing fees, not add new ones. Alberta’s proposal of establishing a deductible part of health care benefits is a user fee by another name. Even Alberta’s 2002 Mazankowski report on health reform, which favours more user charges, acknowledges that taxing healthcare could create hardship for some Albertans. Premier Klein also supports more publicly-funded medical procedures being contracted to for-profit facilities. Yet the evidence is clear that not-for-profit delivery is more cost-effective and of higher quality. This research (including a large McMaster University study) is done in the United States because only that country has enough for-profit and not-for-profit facilities to do those comparisons.

Most acute care in Canada is not-for-profit. However, the U.S. comparisons are relevant to Canada because they involve facilities receiving public U.S. Medicare funds. For-profit delivery has also been problematic in Sweden. Daniel Cohn of Simon Fraser University documents how Stockholm County transferred operation of St. Goran’s Hospital to private hands in 2001 and started contracting services to for-profit facilities. Those facilities rejected seriously ill patients, who faced longer public wait times because public resources had been diverted to for-profit providers. For-profit facilities treated patients with minor problems a practice known as “cream-skimming.” Swedes who most needed care were least likely to get timely access. Sweden’s national government has halted further privatization. Canada can learn from international successes. Joel Lexchin of York University points out that Australia’s pharmacare program has resulted in drug costs 9 per cent lower than Canada’s, thanks to aggressive bargaining with drug companies. Canada’s patchwork of provincial plans limits bargaining power, bulk buying and administrative efficiencies. Our provincial and federal governments should make national pharmacare a priority for Canada. We could also look to Sweden, where 85 per cent of health care is publicly funded, compared to only 70 per cent in Canada. The Conference Board of Canada notes Sweden has extensive prescription drug coverage, health promotion programs and seniors’ health services. Sweden also has a comprehensive social-welfare system, including generous child care and free university tuition. There is lots to learn from Sweden about investing in both health care and in the social determinants of health, such as income, education and early childhood development. It’s also important to acknowledge Canada’s own health-care successes. Provinces are reforming public health systems to shorten wait times, improve access and promote health. These efforts need support. It would be counterproductive to get sidetracked by costly privatization experiments. Let’s learn from our own and other countries’ successes not repeat the failures.

Tammy Horne is a research associate of the Parkland Institute at the University of Alberta and lead author of the recently released report Public Remedies, Not Private Payments: Quality Health Care in Alberta.