Crony Capitalism in Canada

Introduction

My interest in writing this paper was to combine my understanding of Canadian law and its economic systems to discuss unsustainable practices in current government policies and develop suggestions for future improvements. I submit that my previous exposure to Marxist perspectives regarding income inequality directed my inquiries towards more left-leaning ideologies; however, I have come to accept that the promotion of healthy marketplaces can achieve a sustainable future for Canada and its provinces. Over the last decade I have been attracted to a variety of topics of academic research including, financial engineering and portfolio development, Canadian education policies, and foreign investment procedures.

My previous research and writing has examined the development of the Canadian economy alongside the development of the Canadian Constitution; noting the solidification of the primary resource gathering hinterland (periphery) provinces, for the benefit of resource-consuming centre’s economic elite. The solution for which requires a constitutional amendment to the division of powers. Furthermore, many of the underlying concepts of the capitalist ideology clash with the beliefs and practices of Indigenous peoples within Canada. The frictions present between Indigenous and capitalist cultures must be attended to, especially because Indigenous peoples have historically received the lowest distribution of benefits from markets and have suffered from low intergenerational income mobility. This paper seeks to further this discussion to promote an inclusive and community-focused ideology while incorporating existing market concepts of healthy competition.

Luigi Zingales, a highly-cited Italian-American economist has written on issues within US capitalism to try to promote sustainability for the future. Public support for capitalism arises, as Zingales explains, when hard work (not luck) determines success and therefore income disparity is not as a result of luck.[1] However, a fundamental flaw of capitalism is its innate tendency to slide into “Crony-Capitalism”. Crony-Capitalism is the description of the social, political, and economic evolution of capitalism to afford the concentration of wealth and power without merit. Cronyism “represses freedom of speech, eliminates the incentive to study, and jeopardizes career opportunities.”[2]

This paper will consider anti-meritocratic mechanisms that generate Crony-Capitalism, including business lobbying and rent-seeking activities such as firms requesting government subsidies, bailouts, or tariff protections from foreign competition; as well as the increasing barriers to running successful elections. The exploration of the Canadian context should develop policy suggestions to enhance meritocracy, including: opening borders and increasing accessibility to politics and markets; redefining property rights to enhance efficiency of productive assets; developing a new safety-net; and ensuring equal application and enforcement of the law.

Crony-Capitalism arises because, in our society, a successful firm inevitably reaches a point in its lifecycle when the return from lobbying a government to privilege its own position above those of its competitors will exceed the return from investing in research and development activities. Once a corporation reaches a critical-mass the difficulties of sustained innovation are replaced with returns from government lobbying.[3]

Another definition of cronyism is described by Khatri (et al.) as “a reciprocal exchange transaction where party A shows favor to party B based on shared membership in a social network at the expense of party C’s equal or superior claim to the valued resource. For cronyism, to be present, four elements must exist. First, a reciprocal exchange transaction involves an act by party A to give something of value to party B without knowing when or if B will reciprocate, or to reciprocate an earlier favour given by B… Second, favour must be shown such that party B receives something of value from party, whether tangible (e.g. a promotion) or intangible (e.g. information). Third, shared membership of two parties in a social network… forms the basis of favoritism… Finally, a cronyist exchange between parties A and B comes at a cost to party C, who is denied the valued resource despite holding an equal or superior claim to it.”[4]

 

The Role of the Economy

An economy seeks to produce goods and services as efficiently as possible with equal distribution amongst its members. This translates into the expectation in society that individuals should strive to use their bodies to generate work as labourers. The experience gained through working becomes accumulated knowledge capital, a kind of investment which boosts creativity and increases efficiency. There is a limit on how much this can increase productivity, which is determined by diminishing marginal returns. That is to say, that once you’ve made a few wheels, it becomes progressively more difficult to ‘re-invent’.

A meritocratic economy offers a level playing field from which individuals have an equal opportunity to prosper. The fundamental role of an economic system “is to assign responsibility and reward.”[5] We have organized in such a way as to assign money and prestige as rewards for the accepted responsibility of employment. For meritocracy to thrive, society must have a system of evaluation which is efficient, difficult to manipulate, and deemed ‘fair’ by the majority. Furthermore, economic activities cannot deliver excessively unequal outcomes, but “must also confer benefits large enough for people to recognize them.”[6] In a traditional economy, the biggest and most successful firms do not need government protections because they would have the lowest marginal costs; therefore, they would not be afraid to compete because they would gain with a level playing-field.

An economic system should not be conceptualized as independent from government and political markets. Responsibility and reward in Canadian democracy can be defined as public-good and individual prestige as rewards for the accepted responsibility of working for taxpayers. A political market is occupied by government representatives and voters alike who organize as intermediaries for information transfers. These markets too have succumbed to cronyism as Canadian government representatives have amassed a disproportionate amount of market power, and coincidentally, have also increasingly been exposed for offering favours to close friends, and to business and political elites. (e.g. Premier Doug Ford’s choice of appointment for OPP commissioner)

Individual markets can be viewed similar to thematic communities which achieve an organized method of transacting. Markets require both official rules, and social norms. It should also be acknowledged that the market “is also a social process embedded in a network of social relations which, in accordance with group social norms (of fair dealing, reciprocity) are able informally to influence behaviour through rewards (of esteem, status) and sanctions (of disapproval, ostracism), and which may contribute to market orderliness and stability.”[7] A meritocratic pro-market system enabled by policy decisions that equalizes the distribution of economic productivity throughout the society in which it operates should be the most efficient framework to combat cronyism – replacing the ideology that “it’s not what you know, but who you know” in developing a meaningful or well-compensated career path.

Trust (in both counterparties and the system) is the most important norm in every commercial transaction, which may be why many fail to read the intricate details of their contracts. Personal trust is described as an individual’s history of lifetime interactions. Alternatively, generalized trust is “the trust that people have in a random member of a group or society, somebody they don’t know and don’t necessarily expect to run into again.”[8] Generalized trust allows markets to develop, trade to prosper, and civilization to advance. When generalized trust is low, “a potential investor will compare the due diligence costs of an investment with the expected benefit.”[9] If the costs of due diligence investigations are too large, then highly profitable projects are passed-on.

In order to improve the values and beliefs that foster co-operation, Zingales explains that individuals should incorporate “civic values” into their decisions. This includes the ability to be relied upon not to be too opportunistic. “Civic capital is as important a factor of production as physical and human capital.”[10] With more civic capital societies will experience less corruption, greater public safety, better public administration, and more efficient growth of private companies. A general willingness to cooperate with others is enhanced by particular episodes of successful cooperation, demonstrating that history plays a fundamental role in the persistence of civic capital. Oppositely, a climate of suspicion creates public mistrust in others and those that lead them.

Civic capital is difficult to build-up, but relatively easy to depreciate. The level of civic capital in a society affects views of the government and how the government is perceived influences civic capital in-turn. Education is one of the main contributors to civic capital; it has been demonstrated that students working in groups produce better results than those copying from a board during a lecture.[11] Another component of civic capital addresses the human tendency to be engaged and critical. While “an engaged citizenry will complain a lot”,[12] criticism is useful as one cannot identify mistakes with only positive feedback. Furthermore, criticism adds accountability and provides critical feedback for firms, however, it is currently discouraged by costs to file complaints and additional risks of retaliation.

Natural capital is another classification of the productive asset-base which must be sustained. “At the microeconomic level, sustainability requires that the management of a renewable resource should be such that the rate of harvest does not exceed its rate of natural productivity – that is, its regenerative capacity. It also requires that the rate of emission of a waste does not exceed the assimilative capacity of the environment receiving it – that is, its ability to cleanse itself without deleterious effects.”[13] This should create an obligation to future generations “to provide them with the ‘capacity’ to produce, in the form of a minimum level of national capital, the limiting factor [of production].”[14]

 

 

Markets and Democracy

“As the division of labour increases specialization, the interests of the specialized, technically competent elite diverge from those of the rest of the people.”[15] As specialization increases, the number of experts associated within each sector will grow. This should increase the efficiency of productivity for that industry, to a point. The point where it ends results in markets with more knowledge-holders than there are knowledge-seekers, and increases informational inequality (especially in contexts involving non-disclosure or non-compete agreements used to protect knowledge from competition). Furthermore, as specialization increases, individuals are naturally captured by partisanship towards their own discipline. Too much specialization creating too much partisanship threatens meritocracy through disproportionate informational power used to protect incumbents from competition.

“Democracies constantly wrestle with the tension between providing the right incentives – to build human capital, to invest, to work hard – and assuring that the benefits of the free market are widely shared, so that people maintain their faith in both the efficiency and the fairness of the system.”[16] Inequality creates incentives through the promise of a higher reward for good performance and extra effort. Some inequality is therefore required, however not to the extent of inequality being experienced today in regards to the rising costs of healthcare and education coupled with a lower expectation of returns. “Winner-take-all” behaviours within the economy lead to a social-snowball effect resulting in a disproportionate market share being held by a few elites; this disrupts potential equilibrating effects in economic theory, which are not produced in real-life.

Individual actors, in economic theory, are assumed to evaluate simple market transactions to determine if a given price is worth the value of the good or service being offered. Firms do not behave this way because employees are expected to follow orders from superiors, or risk getting fired. This deviation is compounded when conglomerates’ (groups of firms) investment behaviours “deviate significantly from what similar firms that aren’t conglomerates but that are in the same line of business do.”[17] Additionally, “when one division in a conglomerate is in a sector that pays high salaries, all of the other divisions receive higher salaries too.”[18] This furthers income inequality and reduces the incentive to work hard.

People in government tend to rely on networks of trusted friends for information. If networks are “drawn from the same milieu, the information and ideas that flow to policy makers will be severely limited.”[19] This uniformity of informational advice makes it difficult to arrive at the right decisions.

A paper by Dobos found that networking activities as a means of competition – specifically, networking with the aim is to improve one’s prospects of prevailing in formal competitive processes for jobs or university placements – raise ethical issues that must be addressed. “There are broadly two ways that networking might be used to influence the outcomes of some such process: by the ‘exchange of affect’ between networker and selector, and through the demonstration of merit by networker to selector… The first conception gives rise to the corruption argument, accusing the networker of cultivating or at least exploiting non-meritocratic favouritism. This objection can be rebuffed by re-characterising networking as a demonstration of merit, as per the second conception, but this move gives rise to the subversion argument. The networker now faces the charge of undermining formal personnel selection processes, which are designed to ensure appointment of the most qualified by giving all candidates an equal opportunity to demonstrate their qualifications to selectors. This objection can also be countered, but only by appealing to the deficiencies of personnel selection processes in their current form. Since these processes are constantly evolving the subversion objection remains a live one.”[20]

Shifting Momentum

“Sustainable development is about perpetual change that makes society ‘more human’ without straying beyond the limits of the ecological systems on which we depend… [It’s] an indefinite process of social evolution that allows each person to increase his or her enjoyment of life without damaging the Earth’s ecosystems that support this evolution.”[21]

Are there sustainable social norms that can nudge people to act in a way that benefits society when narrow self-interest fails to deliver a desirable outcome? A core requirement of sustainability is to change the paradigm that drives our societies, this can be achieved by changing the fuel of competition to incentivise competitors to seek to deliver the greatest distribution of benefits. Governments should be seeking to enable meritocratic behaviour by removing the “luck” factor in the distribution of benefits (e.g. billionaires paying for graduates’ tuition). By recognizing multiple economic equilibria to create stability and enabling “virtuous circles”, the frequency, consistency, and fairness of rewarding merit applied will increase its approval.

Legislators should begin enabling pro-market behaviour by reframing the concept of markets as transaction hubs for information. Political markets translate value to votes in a democratic system. Financial markets translate value to corporations in an investment system. By increasing the amount of intermediaries to trade through and funding antitrust and fraud-detection programs, more diffuse interests may generate greater public interest in politics while increasing participation in democracy. One idea could be to encourage healthy public-interest consolidation policies with a focus on the shift of political power from firms to the public. Hopefully, this would result in a shift in the focus of political campaigns to increasing the pool of wealth to be equitably distributed to citizens.

Ultimately, the goal of a government working for its people should be in shifting the “too big to fail” mentality to citizens’ interests; changing the idea that the demise of public financial health can create catastrophic disruption in the economy (i.e. an unproductive workforce). This can be achieved by enabling equitable policies which increase access to markets available within society, ensuring financial protections from temporary and permanent exit from workforce.

 

A basic framework for a sustainable capitalist society must:

  • Reduce economic growth but increase social welfare;
  • Make work more meaningful;
  • Reduce hours worked and distribute leisure more evenly throughout lives and between people;
  • Reduce returns to capital without eliminating them;
  • Promote processes and radical product innovation at the expense of incremental product innovations;
  • Discourage excessive capital accumulation without preventing it;
  • Change incentives to effort without eliminating them;
  • Make people more self-aware but more socially connected; and
  • Reduce social pressure and increase rationality.[22]

Threats to Meritocracy

Currently, the major threats to meritocracy (in the US) are the experienced reduction of the benefits that most people derive from markets (versus widespread and large benefits to citizens); and a de-legitimization of markets as a good method of rewarding the meritorious (versus a “welcoming culture”). The consolidation of financial industry interests with those of politicians exaggerates power imbalances, because “unlike investments in physical capital, investments in human capital are hard to finance with an equity stake.”[23] Therefore, most investments in human capital are financed though loans. This system only works when the returns are distributed equally, however the idea that “knowledge is power” has now been underwritten by creditors. These creditors hold the true power as evidenced by the power of lobbying to protect their loans from default through regulations.

Finance is “an essential ingredient in injecting competition into an economic system.”[24] Financial resources enable access and equalization to and within markets. Yet, finance “appears to be contributing to extremely unequal outcomes, not an equalizing of starting points.”[25] Venture capitalists dictate contractual terms to start-ups and “determine the extent to which new companies enter a sector and existing companies exit, thus affecting the allocation of profit in the economy.”[26]

Specialization has manifested itself in the financial sector through financial engineering and derivative trading. The fact that only a few markets are highly active and regulated (e.g. options and futures) demonstrates the effects of consolidation and boundaries to entry have on the reduction of competition. One explanation for financial innovation is the need to increase the extent to which risk is shared, and reduce frictions that hamper finance (e.g. credit cards, and transaction costs). Restricting who can have access to more sophisticated products can be achieved without restricting innovation by transferring the burden of proof of understanding to the seller.

Superstar CEOs are defined, “as those who receive prestigious awards from the business press.”[27] “The distortions created by an economy of superstars tend to compound over time. The more unequal the rewards are, the more universities will try to admit future winners, hoping to receive some of their future donations.”[28] Increasingly unequal distribution of benefits is inevitable if the interests of the elite continue to diverge from the rest of the population, especially if they are increasingly relied upon for government policy decision-making.

The current structure of competitiveness in academia causes professors to develop a career-reliance on publications in peer-reviewed journals. Even for those in tenured positions, their salary depends on their reputation and availability of outside offers which is correlated with the number of publications authored. This creates strong incentives to search for new ideas and reject old ones; however, specialized disciplines and sub-disciplines will always seek to protect themselves from irrelevance. [29]

 

Social Immobility

Intergenerational income is one of the predictors of national inequality. Social mobility is representative of equality of opportunities across markets.[30] “Across Canada, there are two groups of people who are much more likely than others to stay in the same income category as their parents: The poor (typically earning individual incomes below $23,000 a year in today’s dollars) and the very wealthy (that is, with at least one parent who earns more than $220,000 a year). As a result, Canadians who live in places where average incomes are in the bottom fifth are far more likely than others to end up making no more money than their parents.”[31] “The kids in the top 1 per cent are also experiencing a network effect – they are most likely to end up being in the top 1 per cent of their generation. Other research shows that there’s an intergenerational transmission of employers at the top end with a surprising number of children of the very rich working for the very same employers as their fathers.”[32]

In Canada, “a significant majority of children of low income parents live in parts of the country where their chances of growing up to be low income adults are greater than one-in-four, and for many the chances of this intergenerational cycle of poverty are as high as one-in-three.”[33] There exists a positive correlation between the probability of intergenerational low income and the poverty rate in the parent’s generation.[34] Early education opportunities coupled with childhood poverty reduction could help decrease intergenerational income inequality. It is essential to focus on childhood poverty alleviation in Canada, as the strong majority of children raised by lower income parents “face a greater than one-in-four chance of growing up to be relatively lower income adults, and for many these odds were at least as high as one-in-three.”[35]

 

Education

Many people on reserves “don’t have the resources they need to rise above the poverty rates of their parents, and struggle against a legacy of deprivation and neglect. A key factor causing low income mobility among many Indigenous communities, economists say, is the lack of high-quality educational opportunities in reserves and northern communities.”[36] In Nunavut, post-secondary education is only offered by one crown corporation, the Nunavut Arctic College.

Across the provinces, there are examples of systemic unfairness within education systems. The Canada Research Chairs program has been criticized for the fact that many university administrators “ignore normal hiring practices and conduct ‘single candidate’ searches to hire people they know, their best friends, or their favourite students.”[37]

In the early 2000’s, the B.C. government introduced legislation which defeated the system’s reliance on the idea that “a grade is a grade is a grade”. It “introduced a new policy allowing students to take courses from different institutions. The change was intended to provide choice for rural students, who could take online courses not offered in their home schools and then choose their ‘best mark’ to appear on their transcript. But the policy has led to so-called credit shopping, too.”[38]

“Underachieving Ontario high school students are beating out more academically deserving teens for university spots and lucrative scholarships with inflated grades purchased from privately run, for-profit schools.”[39] Furthermore, a CBC survey of Canadian universities showed that “more than 7,000 students were disciplined for academic cheating in 2011-12, a finding experts say falls well short of the number of students who actually cheat.”[40]

These reports show that merit is not a value being respected or taught within Canada’s education system. If our public education system cannot offer equal opportunities and a level playing-field, then how can we expect graduates to change their behaviours when they become employers or managers?

 

Monopolies and Oligopolies

Lack of competition inevitably leads incumbents to create barriers to entry in the markets which they occupy. When this happens, consumers lose twice by experiencing higher prices and lower supply. These activities generate unjustified (and thus excessive) incomes, undermining consensus for the economic system as a whole. Furthermore, the problems created by higher prices (chosen above optimal equilibrium) are then ‘solved’ by monopolists through market segmentation and discrimination against low-paying customers, causing “deadweight loss.”[41]

Monopolistic behaviours necessarily lead to an erosion of human capital in society. This is characterised by bureaucratic infighting, inducing people to cheat the system. The employed incompetent crony “tends to hire subordinates of equal or lower quality… after a few years of such cronyism, there is no easy way back.”[42] Loyalty becomes more valued over competence by managers resulting in a vicious circle of unfairness. The vicious circle begins with excessive government financial support to a sector, which is then met with public outrage, followed by an encouragement of legal regulations on that sector; finally resulting in private-investment re-evaluations, which in-turn restart the cycle by triggering further excesses in government spending.

The most influential state-sanctioned monopoly exists as the government’s ability to approve use of violence and subversive activities through law-enforcement (police) as well as national security and intelligence institutions. These powers exist to aid government officials, and enforce the federal criminal law, and provincial property laws or regulations. “The RCMP, Canada’s federal police, can be traced back to the 1845 Act for the Better Preservation of the Peace and the Prevention of Riots and Violent Outrages at the Near Public Works while in Progress and Constructions.”[43] “Western Canada land was predominately controlled by Hudson’s Bay Company, and the company policed the land until Confederation in 1867.”[44]

Land and property are well-known finite resources; therefore, inequality can be viewed through the distribution of real property. A large majority of all land in Canada is held by federal and provincial governments as “crown lands”, a characteristic which we do not share with our American neighbours. Canadian resource control, viewed through this ownership distribution, resembles nationalization, whereby resources are controlled by a small political elite. Oppositely, relationship-capitalism describes the context where control over resources is maintained by a small business elite. In Canada, land which is not seized will revert title to crown-ownership, a remnant of feudalism. These crown lands can be leased or licensed-out for resource extraction and commercial activities.

Sustained control of resources by any small group of elites encourages self-enrichment behaviours, which show a relationship with intergenerational mobility, the extent to which one moves up or down the economic ladder relative to their parents. In 2016, Statistics Canada published a study on intergenerational income mobility which concluded that Canada is not as much of a mobile society as previously thought, with intergenerational income elasticity over 10 percent higher between fathers and sons. Furthermore, the study concluded that “income persistence is much stronger at the top of the income distribution, implying that the path into top income is more difficult for children whose fathers were not at the top of the income distribution.”[45]

In Canada, some of the most important social and economic sectors are occupied by a few big businesses which are federally regulated. These include the communications sector, occupied by major incumbents such as Bell and Rogers; also, the banking sector is well-known for their incumbents (nicknamed the “Big-5”) including RBC, TD, Scotiabank, BMO, and CIBC.

Consolidation of firms makes informational consensus easier, and the ‘too big to fail’ ideology offers the largest businesses an assumptive guarantee that their demise can create catastrophic disruption in the economy. In financial markets, this leads to a distortion in lenders’ risk-mitigation rules; creditors do not impose these rules on large banks because they know that the government considers them too big to fail. This is made possible because banks know that their debt will always be repaid by taxpayers. “If the belief becomes sufficiently entrenched in the marketplace, the cost, when policy makers surprise the market by not bailing out a big bank, grows even greater.”[46] With bailout anticipations, banks have an increased willingness to lend very cheaply as we have seen with bottomed-out interest rates for the past decade. Interbank transactions require less collateral as the reliance on creditworthiness and implicit government guarantees increases.

 

 

 

Mechanisms that generate Crony-Capitalism

Running Successful Elections

The rules of qualification for electoral parties are contained in the Canada Elections Act,[47] initially the Dominion Elections Act (1874). The minimum requirements imposed by law are that potential candidates are a Canadian citizen who is at least 18-years old on election day, who file their nomination paper for an electoral district (but does not need to reside in that district). They may apply with a political party endorsement, or may declare themselves as an independent. Potential candidates must appoint an “Official Agent” and an officially accredited auditor. Furthermore, they must obtain their district’s electors’ consent, whereby a minimum of 100 (or 50 in larger/remote districts) qualified voters must sign their consent.

Becoming a political candidate creates a financial burden without a corresponding guaranteed reward. The implied requirements for a political campaign include some start-up capital to afford mandatory staffing, as well as marketing materials to communicate intent to run for an election and to elicit electors’ consent. The decision to seek party association requires an alignment of popular ideologies, Independents are therefore less recognizable. The success of attracting voters and political endorsements is heavily affected by a candidates’ ability to re-align their policies and behaviours.

The value of a vote in America, or how much a candidate has to spend to get one vote, is about $400.[48] The Canadian federal campaign expense limits range between $85,000 and $141,000 depending on the electoral district. Without overhead expenses, the average federal candidate could ‘purchase’ almost triple the votes necessary to obtain electors’ consent; however, regardless of calculations, this rule benefits political incumbents who have already obtained consents from prior elections campaigns.

 

Media influence

The concentration and consolidation of ownership of communications infrastructures reduces the amount of publicly available information for political decision-making and increases conformity and consensus within public debate. “The weakest point in any communication system is the coordinating centre, if it goes down the entire system fails. By contrast, the decentralized nature of the internet makes it resilient to attacks.”[49] Furthermore, journalists’ interests are increasingly in conflict with the interests of their employer (e.g. newspaper or broadcast station) as firms are experiencing major returns from increased viewership with decreasing costs of production.

By reducing the availability of diverse perspectives, citizens are more likely to believe the most consistent messages. As fewer individuals have control over which information is shared, the potential for misuse grows; either associated sectors of investment by conglomerates will benefit, or the ability to orient the news will be sold to the highest bidder.

 

Business Lobbying

A recent study by the World Bank in 2018 on cronyism in Egypt determined in clear terms that, “politically connected firms — that have a current or former government official among their managers, owners, or board of directors — innovate less.”[50] This lack of productivity is specifically attributed to policy privileges received which have the effect of redirecting economic resources away from innovative activities.

 

Economic cronyism

“Economic theory teaches us that unless many corporations exist and compete, a few big companies will prefer to collude against the public.”[51] Furthermore, economics recognizes that behaviours can have deleterious effects – but it is known that lobbying and neutrality endorse negative attitudes and develop rent-seeking behaviours. Economic cronyism is characterised by a general tendency towards wasteful or unproductive activities by big businesses. This is often achieved through lobbyists’ encouragement towards developing government regulations which inherently favour incumbents at the expense of new entrants. Any increase in regulation provokes the private sector to ask for favours and exemptions.

“Regulatory capture is so pervasive precisely because it is driven by standard economic incentives, which push even the most well-intentioned regulators to cater to the interests of the regulated.” [52] Economists tend to be biased towards the sectors for which they design regulations. This is because the best data source is from those to be regulated, and therefore gets the most attention. Completely unbiased regulation is unavoidable because when faced with the decision to weaken an industry or minimally interfere with the public, there is only incentive to decide in one direction. This is especially true in Canada in relation to Charter interferences which can be saved under section 1, where the burden of proof of interference lies with those whose rights were infringed upon.

“Another variation on the traditional concept of capture is cultural capture… the problem is not that regulators are lured into favouring special interests at the expense of the public interest, intentionally and knowingly, but rather that they are so persuaded by the special interests’ worldview that they come to believe that they can best serve the public interest by advancing the agenda of the special interests.”[53]

With the rise of private-public-partnerships, firms seek to offer the efficiency of the private sector with the social goals of the public sector (however it often ends up the other way around). Using an idea of a “noble” goal gives businesses the easiest way to make money from taxpayers. These activities further benefit firms at the expense of taxpayers.[54] By framing business activity in an altruistic form of public interest, organizations reverse the effects anticipated by generation profits from poorly-managed public services. Governments should be evaluating the economic efficiency of a policy intervention by testing that it must increase the utility of at least one person without decreasing the utility of anyone else.

 

Political cronyism

Zudenkova’s research on political cronyism concluded that, “the cronyism problem deepens when exogenous shocks are more likely to influence politicians’ performance. Essentially, when politicians are subject to unpredictable forces beyond their control they appoint more cronies. Another simple prediction is that as the size of an appointed staff grows the percentage of cronies in the staff increases. Finally, newly elected politicians who keep incumbent experts appoint fewer cronies than those who build a whole team from scratch.”[55]

“A well-conceived idea or concept can greatly amplify the power of a lobbyist’s campaign.”[56] The advancement of corporate interests shrouded in the guise of philanthropy is leading to the demise of anti-business sentiments. Cronyism equates to helping friends; this causes decreases in efficiency and major increases in power, and results in a greater net-benefit to the political individual. Describing the legalization of corruption in America, Zingales states that currently, “cases of illegal corruption are virtually non-existent – everything is done in a perfectly lawful way – yet senators and representatives are nevertheless becoming ‘butlers’ again for well-connected big businesses.”[57]

Another major issue is that of an increase in voters’ rational ignorance due to a lack of economic incentives to become politically informed. Ignorant voters make it easier for lobbyists to persuade elected representatives to vote their way. “If voters aren’t informed on what policies truly promote competition, it won’t pay for politicians to promote these policies. The distorted political market allows crony capitalism to triumph.”[58]

In Canada, recent political scandals have arisen involving SNC-Lavelin regarding campaign and political financing, fraud, and obstruction of justice. Additionally, the government promotion of Alberta oil by “Alberta Rolls” protestors, and the alleged intermingling with the “Yellow Vest” hate-group highlight more contentious issues.

Around the world, populism is a growing ideology due to rampant cases of corruption and cronyism. “All forms of populism share an exaltation of ‘the people’ and some form of resentment against the ‘dominant elite’”[59] Populism surfaces when a sizeable percentage of the population becomes economically disenfranchised. The rise of populism in the US (i.e. President Trump) has sparked the political campaign of Maxime Bernier and the People’s Party of Canada (PPC), and a resentment towards ‘Globalists’ across North America.

Globalization, “at its broadest is a phenomenon of social geography in which human experience is broadened and intensified through interconnectedness with others on a global basis.”[60] For some commenters, “economic globalization is the international manifestation of the neo-liberal economic agenda.”[61] Worries about the economic effects of globalization are reflected in declining public support for free-trade (e.g. NAFTA). These concerns are echoed in the voices of populists who have declared globalists as enemies. Some of their concerns are rooted in reality: while globalization does increase competition, it also increases wage inequality, and returns on market dominance. Globalization results in a highly unequal distribution of benefits, and creates disenfranchisement of local elites.

Government Subsidies

Any amount of money being offered by the government will encourage lobbying and rent-seeking behaviours. Lobbying is the opposite of working to develop a better product. Increases in government spending give businesses incentives to lobby, to get a bigger piece of the pie. Interestingly, “Tullock’s Paradox” measured the US’ total amount of federal spending (less pensions and interest) versus the total amount spent on campaigns (buying the right to control the budget) and found that that the total amount being spent on lobbying is not anywhere close to the amount of the “prize” (i.e. government budget).

 

Tariff Protections

Tariffs are implicitly subsidies based on protecting and promoting the expansion of a domestic industry. Tariffs are a result of protectionism, “support for protectionism is strongest amongst low-skilled manufacturing workers, who have little political influence… and whose cry for government aid has made little impression on an intellectual elite.”[62] There has been much public debate recently over the actual versus advertised effects of imposing tariffs. Recent tariffs imposed against Canadian goods have produced industry and political benefits for the USA (steel and aluminum) and China (soy); however, because markets are globally interconnected, these protectionist measures have produced an overall detrimental effect to competition as their importers are faced with higher prices. In Canada, these measures taken against our economy have resulted in political distrust in our allies, and have created distortions in commodity prices.

 

Bailouts

Bailouts create an implicit government subsidy for the collateral in bank loans. Repeated behaviours generate an increased expectation for future bailouts, perpetuating a decrease in financial risk for banks. The bailouts following the most recent financial crisis are a demonstration of exponential returns of lobbying successes. American lobbying activities produced a 1,100% rate of return to firms on political contributions.[63] The burden of which fell heavily on taxpayers, as “every household lent $2,000 to AIG”[64] as a consequence of their $223 billion bailout.  The US Troubled Assets Relief Program (TARP), has been described as: “a pillage of defenseless taxpayers that benefitted powerful lobbies… the triumph of Wall Street over… the rest of America.”[65] Overseas, there is some promise of ideological change as the President of Kazakhstan has just announced an end to bank-rescue policies and has introduced a debt-forgiveness program for bad loans.[66]

 

Unequal voting power

Aristotle sought to organize fairness and equality in democracy to oppose oligarchies through “Sortition”, a random allotment of experienced individuals to government committees. Zingales suggests developing a more ‘liquid’ democracy by changing government representatives for particular topics to avoid an entrenched political class who can then sell themselves to the highest bidder.

Canada uses a first-past-the-post, single-member plurality with “effective representation” in government. The right to vote in Canada was modified in Ref. re Provincial Electoral Boundaries (Sask) in 1991. The Saskatchewan Court of Appeal found that the proposed changes to the electoral boundaries infringed the right to vote enshrined under section 3 of the Charter. This was because the proposed quotas on electoral districts and their re-distribution plan revealed a number of ridings with excessive variations of over and under-representation. The Supreme Court of Canada voted in a 6-3 decision to allow the appeal, with Chief Justice Lamer dissenting. The majority found that the right to vote protected under section 3 is not equality of voting power per se, but the right to “effective representation”, and noted that the relative parity of voting power is a prime condition of effective representation, but deviations may be justified by practical impossibility.[67] The dissent noted that the “1989 distribution map reveals a number of constituencies with variations in excess of 15 percent from the provincial quotient. The problem of under-representation is most acute in the major urban centres of the province. Thus, for example, based on its population, the growing city of Saskatoon should be entitled to elect another 1.1 members.”[68] Dissenting judges also noted that the demographic materials filed indicated movement of populations from rural areas to urban centres further diluting each vote.

“The right to vote is so fundamental that this interference is sufficient to constitute a breach of s. 3 of the Charter. To diminish the voting rights of individuals is to violate the democratic system. Such actions are bound to incur the frustration of voters and risk brining the democratic process itself into disrepute… The right to vote is too important to be diluted in the absence of some valid justification. No such justification exists in this case.”[69]

While both the majority and dissent stated that perfect representation may be infringed upon in certain circumstances, since technology has increased exponentially, electoral representation should be mandated to achieve the goal of one-person-one-vote. This will inherently decrease inequality in political markets by creating an actual level playing-field.

Ontario has most recently succumbed to the influence of its FPTP system after a report was released by Fairvote Canada which stated that: “Many projections showed that even if the NDP had won 1 per cent more votes than the PCs, or 2 percent, or even 3 per cent, the PCs were likely to win a majority of seats, a “wrong-winner election” like Donald Trump, and also like 2006 in New Brunswick, 1998 in Quebec, and 19 other elections in Canada’s sad experience with winner-take-all elections.”[70]

A study by Barnett and Bird on the underrepresentation of urban populations in Ontario found that “minority vote dilution occurs in nearly every one of the six municipalities we examined (with the exception of Vaughan), and that racialized differences in voting power are larger within three of these cities (Mississauga, Hamilton and Toronto), than they are across urban ridings in Canada. [They] have shown that minority vote dilution is more than a theoretical concern, it is an ongoing issue in large cities. Overwhelmingly, the results of the textual analysis suggest that factors such as geography, community history and communities of interest dominate the ward boundary review process. Minority representation and ethno-cultural communities are not seriously considered as any part of this process.”[71] They argue that in order to avoid or at least reduce minority vote dilution, the representation of ethnic minorities must be a consideration when determining electoral districts.

Policy Suggestions

Open Borders & Open Markets

The three major lessons learned from the financial crisis are that: (1) markets matter; (2) global markets are vitally interconnected; and (3) governance and sustainability matter.[72] The International Organization of Securities Commissions (IOSC) goals reflect the importance of these lessons: (a) market stability is crucial to economic health; (b) markets are global; and (c) good market conduct is crucial to market stability.[73]

 

Meritocratic systems “emerge when their political benefits are the most acutely felt.”[74] Canada can enable equitable access to political markets by updating elections eligibility rules and electoral representation requirements. However, electoral reform is difficult to expect because it “depends on those who are elected to power under the current system, to change the system. They don’t have any incentive to do that.”[75] In Canada, Prime Minister Trudeau’s campaign promised to get rid of our first-past-the-post system, the pursuit of which was abandoned shortly after he assumed office.

 

 

Sustainable social norms

Social norms “are guides for conduct or action which are generally complied with by members of a society… [they] represent a call from a social group on an individuals’ choices.”[76] In order to act in a given situation, the actor “must adopt an ‘orientation’ to it, that is, it must assess its subjective meaning.”[77] The overall goals of a social system are “to maintain itself in a steady state, and to attain a social optimum though the achievement of specified goals.”[78]

Social norms “increase the prestige of certain activities and consequently the supply of high-quality people who want to undertake them”[79] and are useful in getting individuals to internalize the likely consequences of their actions. Economically-based social norms allow small communities to solve the free-rider problem (tragedy of the commons),[80] but ignore the fact that a behaviour may create social pressure for others to emulate, which actually increases the individual payoff from an action.

Business schools have a great interest in the long-term survival of capitalism, therefore they should be the churches of meritocracy. They should lead the effort to impose minimal norms on businesses which discourage purely optimistic behaviour, even if highly profitable. The way business schools treat their alumni (i.e. connections and prestige) is a powerful enforcement mechanism to improve social norms in business. Additionally, others with vested interests in capitalism must help develop social norms for acceptable and unacceptable lobbying behaviour, and try to enforce them among business students.

 

Fighting inequality with competition

“A country that protects wild animals from the corruption of free food should likewise protect businesses from the corruption of subsidies.”[81] To further reduce incentive to lobby, governments should reduce elected representatives’ need for corporate donations; and ensure no regulation is passed without public representation.

With competitive markets “managers are unable to divert significant resources or pay excessive salaries without jeopardizing the firm’s survival.”[82] Governments should focus on increasing competition where the middle-class feels most squeezed: post-secondary education and healthcare.[83] This can be achieved by increasing the visibility of costs to increase pressure to contain those costs and empower consumers’ ability to evaluate businesses.

Competition creates fairness by: (1) limiting the possibility of earning extraordinary profits, therefore limiting income inequality; (2) ensuring customers enjoy the benefits of innovation; and (3) creating a pressure toward efficiency and hence meritocracy “a system in which responsibilities are given to the people who can deliver the most.”[84] Without competition, freedom shrinks, unfairness increases, and favour is gathered by the “connected insider”. Corporations prefer less competition because then it becomes easier for them to make money

Healthy competition can be encouraged by reducing the ability of firms to attract “irrational” consumers to improve economic efficiency and protect the overly-optimistic. Ultimately this reduces social waste of time and effort spent designing more sophisticated offers to dupe customers and exploit addictions.

 

Access to basic markets

Protections against cost of failure will encourage people to try to seek employment and invest in their own future. These protections are necessary because harsh punishment in cases of failure can be a strong deterrent to take any risk at all. Entry into any market requires individuals to have the minimum necessary financial resources to sustain daily living – in order to maintain a base-level of influence. Canadian welfare programs are designed to offer sub-optimal funding dependant on participation in the labour force. I have argued in other papers that Canadians need a universal basic-income framework to minimize costs and maximize distribution of benefits. A minimum standard of living must be established to allow citizens to participate in society. By setting a foundation-level of financial support, a governments’ empowerment of their citizens will enable market-entry and stability.

To further empower the public to monitor social successes, governments must reassess existing laws to simplify complex regulatory schemes developed by lobbyists. The more technical a law or regulation is, the higher the need for industry expertise and experience. Simple regulation is inefficient (economically), but overregulation confuses the public. Simple rules facilitate simple accountability. Simplification will create more efficient public-monitoring, and reduce the costs and distortions associated with lobbying. This can be accomplished using consumer empowerment programs, which “attempt to enhance the regulatory influence of consumers and thus to check industry sway over regulatory outcomes.”[85] Many regulatory domains involve a diverse range of issues, therefore it is essential to ensure that the consumer empowerment mechanism used will effectively counteract industry influences.

 

Quality Public Education

Entry for new educational institutions is extremely difficult due to incumbents’ shielded market positions through government subsidies and student-loans programs. Furthermore, inefficient teaching methods have contributed to stagnated productivity. Professors and teachers are evaluated heavily on tenure and reputation, however, the real measure of teachers’ productivity should be their ability to improve a given student’s scores. In order for this to happen, teachers must be selected from a big and deep enough pool with high wages and administrators need the ability to eliminate the worst educators.

Zingales has creatively suggested an education framework based on a “voucher-system” which would randomly assign students between voucher-system and public school system (as controls). The goal of the voucher-system is to improve healthy competition in the education market. The system proposes that higher-valued vouchers be offered for people who start from less-privileged conditions to address inequality. Economically, this would also provide financial incentives to schools, as higher dollar-value vouchers will be given for better schools that admit more disadvantaged students (i.e. match-specific vouchers).[86]

Another suggestion is to replace student-loans programs with students’ equity-financing contracts, whereby students would receive school funding by promising a fraction of their increased income as a result of having attended a post-secondary institution. This would require a verification of the income of alumni (obtained from the CRA); and these contracts create a shared risk of failure and provides incentives to lenders to counsel students and to exert market pressure through informed demand.[87]

Furthermore, temporary-unemployment policies should be aimed at protecting individuals, not firms. By using “re-tooling vouchers” which pay educators in-line with their success in retraining the unemployed, provincial governments can reshape their welfare process to better achieve their goals of reducing unemployment. The re-tooling program would identify the most in-need of skills which would be allocated the most resources, generally producing improvements in productivity.

An interesting opinion regarding reducing cronyism and bias in research funding suggested introducing a lottery-system and actually increasing the availability of ‘luck’ in regards to opportunities for innovation. Fang observes that science is inherently a low-yield endeavour, and concludes that: “To continue to reap the maximal benefits of scientific exploration, researchers must be encouraged to search as far and wide as possible, leaving no stone unturned, even though only some will be successful in their quests… ‘The reason markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill.’”[88]

 

Federalism

A study on the East-Asian financial crisis in the late twentieth-century found that the “transparency, or ‘cronyism’, factor is the most significant variable influencing an East Asian country’s: (1) economic recovery time from a crisis, and (2) change in the country’s exchange rate during the crisis period. This transparency factor dominates the effects of monetary and fiscal policies, as well as other important macroeconomic variables.”[89]

Banking and taxation fall under the authority and jurisdiction of the federal government enshrined in the constitutional division of powers. “In principle, government intervention should aim to alter prices in order to achieve some social benefit. The goal of the intervention is to change incentives, and income redistribution is just a side effect”.[90] Glucina and Mayumi’s research into the relevance of thermodynamics in economics concluded that at the policy level, “thermodynamics is still relevant as it provides an understanding of which processes do and do not have the potential to meet our goals pertaining to the vital issues of energy security and climate stability. It can also be used to analysis current energy systems to identify opportunities for improvement.”[91]

“Once we understand that the issue addressed by ‘too big to fail’ is the interconnectedness of large financial institutions, and therefore the stability of the larger system, we can make some important distinctions… The solution is regulation that protects the systematically relevant obligations of large financial institutions – making sure that these institutions, not the taxpayers, would repay the obligations in case of bankruptcy – but that leaves open the possibility that non-systemically relevant obligations would not be protected. Under this new system, banks would be required to hold two layers of capital to protect their systemically relevant obligations. The first layer would be basic equity… The second layer would consist of so-called junior long-term debt, which means that the institution would repay it only after making good on its other debt.”[92] This second layer would act as a market-based trigger to signal the thinning of a firm’s equity cushion because this layer of debt would be traded without the assumption of bailout protection and could offer a more genuine market assessment of value and risk, acting like a “margin call” for investors.

The reliance on banks and lenders will compound without intervention, this jeopardizes the development of other organized exchanges as it creates fewer intermediaries to trade through. This severely undermines the ability of small firms to compete and contributes to systematic instability, further increasing the likelihood of future taxpayer bailouts. “In addition to their negative long-term incentive effects, bailouts have the disadvantage of redistribution money from taxpayers to lenders.”[93] This creates addictive inducements to take on more risk.

Zingales offers a new approach to federal financial controls by suggesting a re-allocation of financial regulation and supervision responsibilities to three different agencies, each representing one of the principal goals of financial-system regulation: (1) The Price Stability Agency which would control inflation through monetary policy; (2) the Investor/Consumer Protection Agency tasked with ensuring trust within markets; and (3) the System-Stability Agency charged with minimizing the risk of a systemic collapse.[94] The enabling legislation would have to create a board consisting of the agency-heads tasked with ensuring transparency, communication of critical information, and fairness when striking compromises between agencies.

Fiscal policies are funded through tax revenue. Taxes can function to raise revenues; to modify incentives; and to redistribute income.[95] Any subsidies should be considered in tandem with some other tax that raises the necessary revenue. Taxing income discourages working, the benefits of its associated subsidies are perceived as being concentrated among the non-working population. Taxes are often subject to political reframing, in reality, a tax on sugar is effectively a subsidy on corn syrup – increasing corn syrup consumption while reducing that of sugar. By fighting against crony capitalism, governments can relieve public pressure for redistribution, as redistribution reduces incentives to invest.

However, good taxes “may correct distorted economic incentives, doing free markets a favour.”[96] A Pigouvian tax is where the “burden of taxation falls on a concentrated and politically powerful group, while the benefit is enjoyed by a dispersed and politically noninfluential one: taxpayers.”[97] (e.g. tobacco tax to alter incentives to reduce costs of healthcare; and, a carbon tax helps reduce pollution). A system based on Pigouvian taxes is less captured by vested interests and can be used a substitute for regulations. They can provide a solution to the problem of regulatory capture, and can be used to penalize excessive lobbying.

Any tax reform measures should seek to reduce the proliferation of tax deductions and impose a maximum marginal tax rate to dissuade tax evaders and eluders. Politically “it is preferable to raise general tax revenues. Since the burden of general taxation falls on a large number of dispersed voters, raising income taxes slightly is easier than imposing taxes on a specific product, such as pollution – even though the former tax is distortionary, inducing people to work less, while the latter eliminates a distortion. This is the reason Pigouvian taxes are so rare.”[98]

One type of good tax could be a new tax on short-term debt (e.g. maturities less than one year), especially those held by financial institutions. This would discourage both excessive leverage and short-term leverage, preventing another financial crisis. Another could be a progressive tax on corporate lobbying. This could reduce corporations’ incentives to lobby, and redistribute the proceeds to support arguments of more diffused or oppositional interests. This would also reduce incentives to shareholders to pressure managers to lobby.[99]

 

Redefining Property Rights

Ownership rights associated with property arise only through an act of law. “Immediately after the creation of ownership titles out-of-nothing, these yield [an] ownership premium.”[100] Ownership economics associates exploitation of the ownership premium with interest rates; “the rate of interest results from the temporary loss that is suffered when the owner imposes a burden on his property as part of the money-creation process.”[101]

“Private property without competition leads to abusive monopolies, while competition can work wonders to maximize welfare even when private property is less than secure. The more political competition there is, the better outcome in terms of policy and freedom.”[102] To enable healthier competition, governments can develop policies to benefit consumers through redistribution of necessary proprietary advantages (e.g. phone numbers; bank account numbers; internet connection ID), and lower the duration of patent monopolies. This would give consumers greater political power in their decision-making, in place of the ‘voting with a dollar’ ideology.

 

Information Economies

Information economies involve transactions with immaterial, intangible goods, therefore, “minor changes in the definition of what constitutes property and how it is enforced can have tremendous consequences on a firm’s profitability.”[103] Data availability is essential to making properly-informed decisions. Governments need to develop incentives to increase data availability, sharing, and analysis. “The essence of rigorous data analysis is threefold: good data, smart people competing to find flaws in the analysis, and a level playing field where ideas matter and status doesn’t.”[104] The dangers of expanded power over proprietary data include privately controlled information distribution to researchers, as well as control over how analyses are published.

 

A New Safety-Net

Maximum-wage regulations

Canadians have begun to recognize the importance of setting a safety-net for those who stumble to save them from falling, however, we must begin to recognize the importance of setting a safety-net to protect society from the Icarus who try to fly too close to the sun. “The purpose of corporate governance standards is to influence the drivers of market players’ behaviour, to encourage greater transparency, reduction of conflicts of interest, and a focus on the interests of investors and other stakeholders.”[105] Bad corporate governance “leads to outsize executive pay, heavy lobbying, corporate malfeasance, opaque management, and cronyism.”[106]

Boards are supposed to act in the interests of shareholders, the failure of which results in a board member’s damaged reputation decreasing future income potential. This assumes that one’s competence includes an incentive to maintain a good reputation, which is a weak control. Corporate corruption and fraud occur when controls are weak, and controls are weak when the people in charge have no incentive to challenge the CEO. Instead, corporate law should be amended to include the appointment of board members who are accountable directly to the shareholders; remove protections against competition for incumbent managers; and make it easier for shareholders to nominate some candidates to the board and reserve seats for them as long as they gather a sizeable consensus (e.g. one third of shareholder votes taken). The “reservation quota” is needed to jump-start the market for truly-independent board members, and therefore should be temporary.

In order to reduce opportunities for unproductive and excessive rewards, the allowable levels of executive compensation “should try to filter out all the external shocks that are beyond the control of any executive and that affect performance of all firms in the industry but are not determined by any of them.”[107] Especially since “excessive compensation of CEOs and their board members predicts subsequent low performance by their companies.”[108]

 

Equitable Application & Enforcement of the Law

Enforcing Limits on Lobbying

“Both economic theory and empirical evidence suggest that lobbying is excessive and corrupting and should be curbed.”[109] It is therefore necessary to include social norms in all lobbying (i.e. any general advocacy), while differentiating ‘special-interest’ lobbying and empowering the enforcement of norms.

Thurlow writes from a perspective of promoting healthy lobbying through simplifying regulations under the Lobbying Act.[110] Lobbyists’ careers are somewhat dependent on their former government connections, therefore lobbying can greatly benefit from competition to reduce cronyism. “If various interests compete, using roughly similar resources, to transmit information to legislators, the legislative outcomes will be efficient.”[111] To ensure similar resources, governments can enforce this using a progressive tax on political contributions which redistributes benefits to more diffuse public interests.

Empowering antitrust legislation & enforcement.

Antitrust benefits competition by preventing monopolies, cartels, and trusts that harm competition. It attempts to strike a balance between economies of scale and excessive consolidation evaluated based on the magnitude of influence accumulated by corporations (business resources, and number of employees / voters). Antitrust efforts should be aimed at reducing the potency of political influence a business can acquire (i.e. through mergers), especially since state regulators will become more lenient after a big merger within an industry.[112] Further efforts can also curtail business practices that erect barriers to entry and competition by adding limitations on the amount of lobbying the firm engages in to protect the public from the failure of the market.

 

Enhancing the effectiveness of the common-law

An independent institution should be created with the sole purpose of funding class-action lawsuits to combat big-business’ special interests. Class-action lawsuits are an example of the profit-motive benefitting everyone to help level the playing-field. The function of class-action lawsuits is compared to how speculation provides liquidity to markets and accurate prices to investors, “even small claims, having little potential on their own, can be effectively pursued through aggregation.”[113] Encouragement of class-actions will also provide financial incentives for “peoples’ experts” who can provide intellectual firepower in their defence.

The strongest incentives for fraud-detection in public corporations lie with the shareholders, however they are dispersed and often act through proxies. The most effective method of detecting fraud, however, has been through employee whistleblowers. Governments should create a reward system for whistleblowers and introduce law to allow society to recover unfair subsidies. Fraud-detection could also be enhanced by creating a right for any citizen to sue a subsidized industry in the name of the state and obtain restitution of the unfair subsidy, and retaining a ‘finders’ fee’.

Legislative amendments should include corporate tax rate modifications to the deductibility of interest from taxable corporate income should help to eliminate distortions in favour of debt which disadvantages small firms and pushes all firms to borrow more.[114] Governments creating these modifications can ensure that the rules are simple and effective by applying them to those from which they originate (i.e. parliament).[115] Furthermore, pro-debtor amendments should be made to bankruptcy rules to reduce the burden of personal debt for insolvent borrowers.

 

Conclusion

A meritocratic society is essential to enable fair and equitable competition. To enable meritocracy in Canada, governments must: set maximum and minimum standards of living; empower citizens with voting parity, property rights, and natural capital; provide equitable opportunities to access education; and reduce their reliance on big-businesses. Canada’s federal government should focus on simplifying lobbying regulation and reporting procedures, imposing a progressive tax on political contributions, enforcing social norms in lobbying and political decision-making, and empowering antitrust and class-action initiatives.

 

 

 

 

Bibliography

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Reference re Provincial Electoral Boundaries (Sask), [1991] 2 SCR 158.
 
Legislation
 
Canada Elections Act, SC 2000 c 9.
 
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[1] Luigi Zingales, “A Capitalism for the People” (New York: Basic Books, 2012), at 3.

[2] Ibid at xiii.

[3] Ibid at 139.

[4] Naresh Khatri, Eric Tsang & Thomas M Begley, “Cronyism: A Cross-Cultural Analysis” 37:1 (January 2006) J Intl Business Studies 61-75, online: <jstor.org/stable/3875215>, at 62.

[5] Ibid at 14.

[6] Ibid at 18.

[7] Christopher Nobbs, ed.. “Economics, Sustainability, and Democracy: Economics in the era of climate change” (New York: Routledge, 2013), at 104.

[8] Supra note 1, at 166.

[9] Ibid at 169.

[10] Ibid at 170.

[11] Ibid at 173.

[12] Ibid at 173.

[13] Supra note 7, at 143.

[14] Ibid, at 146.

[15] Supra note 1, at 106.

[16] Ibid at 123.

[17] Ibid at 41.

[18] Ibid at 43.

[19] Ibid at 68 – 69.

[20] Ned Dobos, “Networking, Corruption, and Subversion” 144 (2017) J Bus Ethics, at 476-477.

[21] Neil E Harrison, “Sustainable Capitalism and the Pursuit of Well-Being” (New York: Routledge, 2014), at 5.

[22] Ibid at 168 – 170.

[23] Supra note 1, at 135.

[24] Ibid at 48.

[25] Ibid at 49.

[26] Ibid.

[27] Stuart L Gillan, “Recent Developments in Corporate Governance: An Overview” 12 (2006) J Corporate Finance, at 394.

[28] Supra note 1, at 137.

[29] Ibid at 192.

[30] Chicago Humanities Festival, Luigi Zingales: Capitalism for the People, (February 5, 2013), online: <youtu.be/jujfbVxjRqQ>.

[31] Doug Saunders, Tom Cardoso, “A tale of two Canadas: Where you grew up affects your income in adulthood” (2017), online: <theglobeandmail.com/news/national/a-tale-of-two-canadas-where-you-grow-up-affects-your-adult-income/article35444594/>.

[32] Ibid.

[33] Miles Corak, “Divided Landscapes of Economic Opportunity- The Canadian Geography of Intergenerational Income Mobility” (Chicago: HCEO, 2017), online: <econresearch.uchicago.edu/sites/econresearch.uchicago.edu/files/Corak_2017_Divided_Landscapes.pdf>, at 40.

[34] Ibid at 36.

[35] Ibid at 28.

[36] Supra note 31.

[37] Marjorie G Cohen, “Cronyism thrives in CRC hiring process”, 50:5 (May 2003) Canadian Association of University Teachers Bulletin.

[38] Sandy Farran, “Can high school grades be trusted? (November 6, 2009), online: <macleans.ca/general/can-high-school-grades-be-trusted/>.

[39] Robert Cribb, “Star Investigation: Cash for marks gets kids into university” (September 16, 2011), online: <thestar.com/news/canada/2011/09/16/star_investigation_cash_for_marks_gets_kids_into_university.html>.

[40] Holly Moore, “Cheating students punished by the 1000s, but many more go undetected” (Manitoba: CBC 2014), online: <cbc.ca/news/canada/manitoba/cheating-students-punished-by-the-1000s-but-many-more-go-undetected-1.2549621>.

[41] Supra note 1, at 35.

[42] Ibid at 41.

[43] George Johnstone, “Less is More: North American Case Studies on the Amalgamation of Policing” (Homeland Security Affairs, September, 2017), online: <https://www-hsaj-org.proxy.bib.uottawa.ca/articles/14248>,  at 84.

[44] Ibid, at 83.

[45] Wen-Hao Chen, Yuri Ostrovsky & Patrizio Piraino, “Intergenerational Income Mobility: New Evidence from Canada” (2016), online: <150.statcan.gc.ca/n1/pub/11-626-x/11-626-x2016059-eng.htm>.

[46] Supra note 1, at 58.

[47] Canada Elections Act, SC 2000 c 9.

[48] Supra note 1, at 76.

[49] Ibid at 249.

[50] David Francis, Sahar Hussain & Marc Schiffbauer, “Do Politically Connected Firms Innovate, Contributing To Long-Term Economic Growth?” (June 2018) World Bank Group, Policy Research Working Paper #8502, at 2.

[51] Supra note 1, at 254.

[52] Daniel Carpenter & David A Moss, eds., “Preventing Regulatory Capture: Special Interest Influence and How to Limit It” (New York: Cambridge University Press, 2014), at 124.

[53] Ibid at 456.

[54] Supra note 1, at 81.

[55] Galina Zudenkova, “Political cronyism” 44 (2015) Soc Choice Welf, at 486.

[56] Supra note 1, at 80.

[57] Ibid at 79.

[58] Ibid at 251.

[59] Ibid at 109.

[60] Supra note 7, at 113.

[61] Ibid at 115.

[62] Supra note 1, at 140.

[63] Ibid at 77.

[64] Ibid at xv.

[65] Ibid at 89.

[66] Nariman Gizitdinov & Anthony Halpin, “Kazakh Leader to Wipe Out Debt of the Poor, End Bank Rescues” (Bloomberg, June 2019), online: <bloomberg.com/news/articles/2019-06-26/kazakh-leader-to-wipe-out-debts-of-the-poor-end-bank-bailouts>.

[67] Reference re Provincial Electoral Boundaries (Sask), [1991] 2 SCR 158, at 160.

[68] Ibid at 169.

[69] Ibid at 172.

[70] Fairvote Canada, “Ontario voters cheated by first-past-the-post with PC false majority” (June 8, 2018), online: <fairvote.ca/2018/06/08/ontario-voters-cheated-by-first-past-the-post-with-pc-false-majority>.

[71] Rachel Barnett & Karen Bird, “Effective Representation for Whom? Visible Minorities and Ward Boundary Review in Ontario Cities” (June, 2017), Canadian Political Science Association Annual Conference, at 14.

[72] David G Mayes & Geoffrey Wood, eds., “Reforming the Governance of the Financial Sector” (New York: Routledge, 2013), at 240.

[73] Ibid at 242.

[74] Supra note 1, at 18.

[75] Valérie Ouellet & Zach Dubinsky, “The electoral game: What would Ontario results look like under a different voting system?” (CBC: June 16, 2018), online: <cbc.ca/news/ontario-election-electoral-system-alternatives-1.4709074>.

[76] Supra note 7, at 102 – 103.

[77] Ibid, at 98.

[78] Ibid, at 99.

[79] Supra note 1, at 193.

[80] Ibid at 177.

[81] Ibid at 91.

[82] Ibid at 39.

[83] Ibid at 149.

[84] Ibid at 28.

[85] Supra note 7, at 387.

[86] Supra note 1, at 147.

[87] Ibid at 152.

[88] Ferric C Fang, “Research Funding: the Case for a Modified Lottery” 7:2 (2016) American Society for Microbiology, at 6.

[89] Michael S Pagano, “Crises, Cronyism, and Credit”, 37 (2002) Financial Review, at 229.

[90] Supra note 1, at 223.

[91] Mark David Glucina & Kozo Mayumi, “Connecting thermodynamics and economics Well-lit roads and burned bridges” 1185 (2010) NY Academy Sciences, at 26.

[92] Supra note 1, at 235.

[93] Ibid at 84.

[94] Ibid at 228.

[95] Ibid at 217.

[96] Supra note 1, at 220.

[97] Ibid at 225.

[98] Ibid at 225.

[99] Ibid at 223.

[100] Gunnar Heinsohn & Otto Steiger, eds. “Ownership Economics: on the foundations of interest, money, markets, business cycles, and economic development” (New York: Routledge, 2013), at 54.

[101] Ibid, at 1.

[102] Supra note 1, at 254.

[103] Ibid at 158

[104] Ibid at 245.

[105] Supra note 73, at 238.

[106] Supra note 1, at 159.

[107] Ibid at 133.

[108]Supra note 4, at 62.

[109] Supra note 1, at 200.

[110] W Scott Thurlow, “Some Obervations on the State of Lobbying in Canada” (2010) Canadian Parliamentary Review, at 6.

[111] Supra note 1, at 187.

[112] Ibid at 157.

[113] Ibid at 199.

[114] Ibid at 212.

[115] Ibid at 213.

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