Some expressions find common usage in many parts of the world. One such expression is ‘a game of cat and mouse’. Some other expressions are typical of a geographic region. In South Asia, for example, one widely used expression is:
A mouse digs a hole in the ground to live in, (but) a snake actually lives in it.
In human terms, this means that the fruits of productive labor by one person or group are extorted and enjoyed by another person or group. It is, therefore, in the human context that the expression is generally used. The situations in which the expression comes into play are often the result of a weak social contract, where protection for the individual-, worker- and property rights is weak.
Let us examine if the expression can be applied to a society such as present-day Canada, where there is otherwise a strong social contract.
PRODUCERS V/S EXTRACTORS
As the great American author James A. Michener proposed, it is likely that the first animals to be domesticated by humans were other humans. I take this hypothesis to mean that, given the ability, humans tend to satisfy their needs and wants through extracting the value of other people’s efforts, without offering value in return. This tendency can be observed throughout human history, most notably in the institutions of feudalism and slavery. However, in modern times, with individual rights and equality before the law well-entrenched in our systems of governance, living high off other people’s work requires subtler methods. I am of the view that one of these methods involves public finance.
Popular criticism of those who benefit from the productive work of others comes in different flavors, and each flavor has its favorite target as a beneficiary:
1. The so-called ‘welfare bums’ who aren’t seen as being productive at all, and have adjusted to living off the various publicly funded programs. These people are usually – but not always – at the bottom rung of the economic ladder. This point is generally made by people who belong to what is commonly called the ‘right’ side of the political spectrum.
2. The so-called ‘1%ers’, who are at the very top of the economic ladder. The argument is that their accumulated wealth and the resulting clout allow them to avoid paying their ‘fair share’ of taxes. This point is generally made by people who belong to what is commonly called the ‘left’ side of the political spectrum.
3. In addition, there is a group of politically connected people (whether active politicians or not; we shall name them collectively as ‘politicos’) who are accused of being ‘at the public trough’ and making a very good living that is very much beyond their modest abilities or disproportionately high compared to their minimal effort. Whether the said politicos belong to the ‘right’ or the ‘left’ of the political spectrum depends on the political leaning of the person doing the labeling. In other words, the ideological prism is still at play, either side accusing the other of unfairly extracting the economic worth of other people’s efforts.
I am of the view that the tendency to view this issue through a partisan lens is a hindrance to achieving a proper understanding. For one, participants in an economy are not single-faceted; individuals can be producers and extractors at the same time. What matters is the equation between the value of their production versus that of the extracted value that they receive as ‘social benefits’, ‘welfare’ or any other form of patronage. Secondly, the extraction process works through a single mechanism, viz. public finance (or more generally, the State apparatus) regardless of the identity of the recipient. Let us examine these two points one by one.
SHADES OF GREY
An individual can be receiving social benefits without producing any economic value, and still not be an extractor, e.g. when drawing EI benefits. Employment insurance is part of the social contract that provides financial support during periods that are, in technical jargon, called ‘frictional unemployment’. One pays into the contract in a predetermined proportion, on the specific condition that when in need, they will be paid out of the same contract, again in a predetermined proportion. On the other hand, if an individual ‘games the system’ in order to draw more EI benefits than they are eligible for, that individual would be unhesitatingly classified as an ‘extractor’ by most everyone. The key here is non-adherence to the spirit of the social contract.
Similarly, a businessperson, by providing goods/services, as well as by generating employment, is a producer. However, the same businessperson becomes an extractor if they resort to evading taxes, or bypassing regulations relating to workers or public health, or by qualifying for a government grant/subsidy to the exclusion of other claimants. The key factor here is the ability to defy the social contract, not just in spirit but sometimes in the letter as well.
In a more common situation, many individuals typically produce economic value and receive social benefits simultaneously. This applies to businesses also when they receive grants or other forms of financial patronage (one current version of this is the federal government’s ‘Climate Action Plan’).
In many of these cases, especially as relates to individuals (as opposed to businesses), the financial value of benefits exceeds that of their productive work. This makes them net extractors in the economy. Individuals in this category typically still have unmet needs. The governmental response in such cases is to increase their benefits, which entrenches these individuals more firmly in the ‘extractors’ category.
In theory, the disequilibrium between the financial reward of the economic output produced by these individuals vis-à-vis the financial value of their needs can be addressed by increasing the former. In practice, this is much easier said than done. Therefore, governments have a built-in tendency to choose the softer option of distributing largesse. In this regard, the period immediately preceding an election provides an opportune time-frame for proposing such increases. For this reason, quite often elections are exercises in voters opting to receive more of other people’s economic output. The outcome of these elections is determined by the relative number of net extractors versus that of net producers in the voting population. This is a significant point, because there is a large pool of workers whose economic reward is paid out of public funds, viz. public sector employees. The economic value of their output is paid from the pool of funds that is collected by the State, using its coercive power, from other economic producers. As such, the mechanism of price discovery that applies to market transactions is not available in the case of public service. The remuneration package of public servants has an air of arbitrariness in public perception, whether deservedly or otherwise.
In some circles, there is a tendency to see all public sector workers as parasites on the society, which is to say, not just as net extractors, but offering hardly any value in return for their reward, and only marginally above the much-maligned ‘welfare bums’. This is lopsided and untrue. Any State needs a cadre of workers in order to discharge its core functions. This all the more true of a 21st Century State, particularly one with one of the highest development indexes in the world such as Canada. Their productive work is essential to the smooth functioning of the society. This work does have positive economic value.
That said, it is tempting, and entirely feasible, to swell their ranks and goose up their economic reward to a point where their objectivity as voters gets compromised. Thus, the ‘extractor’ element in the public sector consists of two categories:
1. Those who are employed in excess of the number of employees required to maintain efficient delivery of the core functions of the State, and
2. Those whose rewards from employment exceed the economic value of their output.
Going back to the issue of electoral outcomes, the two groups, viz. the public sector and the net extractor class (outside the public sector) often become the determining factor for these outcomes. At this point, it is possible to see competitive bidding among political parties for winning over these two groups, regardless of the stated political ideology of the party.
Elections are, however, fought on a collection of issues. Therefore, it is still possible for the remaining class of ‘extractors’ (the so-called ‘1%ers’) to use their resources in order to achieve an electoral outcome that benefits them. This outcome is not necessarily detrimental to the net extractors and the public sector workers; the gains that were secured earlier are almost never rolled back.
In sum, each election cycle solidifies the position of the extractors in a collective sense. The ‘producer’ class must increase its output in order to sustain the extractor class.
THE ‘MORALLY OFFENSIVE’ STUFF
While it is possible to make a case for individuals’ entitlement to basic necessities on humanitarian grounds, businesses do not have such entitlements. Structured policies that make public funds accessible to businesses evenly may be socially accepted at some level, or in extraordinary circumstances like severe recessions. Usually, there is a desirable social goal attached to such policies, such as providing training to new entrants in the workforce etc. But any other instance of public funds being given to businesses invites public disapproval. Part of this reaction is owing to the fact that the recipients are generally politically connected, and are able to exercise levers to have such favors extended to them. These disbursals are seen as a pure case of extraction.
One special case of extraction took place in Ontario in respect of the contracts for energy generated with windmills and solar installations. In essence, these contracts entrenched, for decades, the transfer of economic value directly from the users of electricity to the owners of these facilities at significantly inflated rates. The owners of these installations are not obligated to provide a matching value in return for the value that they receive. This case needs special mention as it uses an unusual method: it transfers value directly from producers to extractors without involving public funds. This direct nature of the transfer makes it comparable to some methods that were used by colonialists of yore. This is not surprising – colonization was, in essence, a case of the ‘extractor v/s producer’ dynamic playing out on a macro scale.
One final category of morally offensive case of extraction is when elected officials vote for themselves a raise in pay and/or perquisites. In ordinary public view, this represents a classic – and perhaps ultimate -case of ‘other people’s money’. In general, public perception of elected officials’ worth is low; however, for the same reasons that apply to public servants, their existence is necessary, and their functions have an economic value. I suspect that the real reason for the disfavor with which the public sees these raises is that there is no process of public consultation and approval for these exercises. Practically no one else in the society is in a position to decide to increase their remuneration while working for someone else.
MORE OF THE SAME (OLD, SAME OLD)
At some point, the ratio between production of economic value on one hand, and its extraction by non-participants on the other, becomes too skewed to maintain a healthy, thriving economy. Therefore, a policy maker seeks to add to the productive class, or alternatively, to increase the value of what is produced. As we have seen above, in a competitive democracy, the extractor class tends to grow, both in number as well as in terms of how much it extracts from the economic value produced by the producers.
In nature, snakes have the advantage of the high rate of fecundity of mice, such that they can continue to extort the value of the productive work of mice without worrying about running out of mice, and thus running out of holes to live in. In the human context in today’s Canada, alas, the overall fertility rate is low. The only way to increase the number of producers is through immigration. This is perhaps the key reason why quotas for immigration continue to be set higher and higher, regardless of the political stripe of the party in government. This increases the number of residents – and later citizens – in Canada, who can join the ranks of producers. One unintended consequence of this supposed solution is that it results in an artificial increase in the perceived productive value of things that had already been produced earlier, such as the pre-existing stock of housing. Having the same house double or even triple in value within ten years does not increase its value to the user as a dwelling unit, but it does boost financial numbers, including government revenue through property tax and land transfer tax. Any transaction involving properties results in a higher economic value being recorded. Since income growth is lagging far behind asset-price inflation, the end result is a significantly reduced housing affordability for an ever larger part of the population. This, of course, offers a political opportunity to introduce or increase ‘social assistance’, and thus add to the ‘extractor’ class.
At the same time, increased competition in the workforce reduces the value of the most productive asset that most individuals possess in the modern world: education. Applying the law of diminishing marginal returns, we may soon cross an important threshold, when the cost of education surpasses the expected returns from several years’ worth of employment in the field. In some fields, such as the study of law, this may have happened already.
Individuals are rational beings, and will attempt to surmount this obstacle by seeking employment in places where the returns are still commensurate to the cost of education. As time passes, more and more of such opportunities will only be available in the public sector. Alternatively, governments will be tempted to step in to ‘help’, via newly devised plans of social assistance. This is to say that increase in the ‘extractor’ class may have become structural at this stage. There will be too few mice digging holes for the snakes to live in.