April 24, 2017
Check against delivery
Bonjour tout le monde, it is such an honour and a pleasure to be here. I want to thank the LSE for giving me the opportunity to speak today, 25 years after I received my doctorate here. I’d like to dedicate this lecture to Tony Atkinson, my friend, mentor and thesis supervisor, who passed away earlier this year. His work on poverty and inequality inspired me and many others.
When I first came to London, as a young French Canadian, I was able to experience for myself the special relationship between Canada and the United Kingdom. We share more than just a Queen, of course. We share our deepest values.
And, luckily for me, the professors of the LSE were willing to share their ideas.
Our subject today is policy versus politics. I spent a career thinking about public policy—which I began here at the LSE, and continued as a professor of economics in Canada. Then my Prime Minister, Justin Trudeau, put me in charge of social policy, along with a 70 billion pound budget. I only became a Minister in 2015, so I have not yet managed to end poverty, or make housing and childcare affordable for all, but I’m working on it.
The LSE has a proud tradition, of course, of economists who impact policy. Alumni and staff from this school account for more than a quarter of all Nobel prizes in economics. I stood on the shoulders of giants like Amartya Sen, who has had a great influence on my thinking on the many dimensions of well-being and the social value of liberty and diversity.
This evening I’d like to talk about three things:
- Why I entered politics;
- How being a politician is different from being a professor; and
- What challenges I’m trying to address as a Minister.
I think the best starting point for tonight is the story about how I got into politics.
For 23 years, as a researcher and as a professor, I was focused on facts, not power. After I graduated from the LSE, I became a professor of economics at Laval University, in Québec City, a beautiful and historical place where there is still snow on the ground right now.
My career was about facts. I gathered facts, I analysed facts and I wrote about facts. Sometimes policymakers listened. Sometimes they did not.
A few years ago, the previous Canadian government decided to increase the age of eligibility for old age pensions, from 65 to 67. I became alarmed because the government did not seem interested in knowing who would bear the burden of the change.
So I did what any economist would do: I went looking for the facts. I put together a small team of researchers and graduate students, and we assessed the likely social and economic impact of the change in the age of eligibility.
We found that the change would plunge 100,000 seniors, aged 65 and 66, into poverty, every year. This represented a tripling of the poverty rate, from 6% to 17%.
The average senior man would have seen his income drop by 11%, while the average senior woman would have seen her income drop by 32%. Elderly women would clearly be the worst affected.
The worst impacts would hit those least able and least likely to adapt their work and savings behaviour. These facts mattered to me, and of course they mattered to vulnerable seniors. But the Canadian government at that time did not bother to count, and could not be bothered to care.
So I did what most economists do not do, which is run for elected office. I happened to live in an area where a candidate from my party, the Liberal Party, had not won in over 35 years, so at the time I felt more like Don Quixote than Winston Churchill. But, to my surprise, I won.
Soon after that, Prime Minister Trudeau made me the Minister of Families, Children, and Social Development, with a major portfolio that includes employment insurance, childcare, housing, pensions, and benefits to families and seniors.
Prime Minister Trudeau gave me a clear mandate: grow the middle class, and help those who are working hard to join it. Prime Minister Trudeau asked me to help make sure that every Canadian has a real and fair chance at success. And this is what I’ve been trying to do ever since.
2. Politics vs Policy
Now, I’d like to say a few things about the transition from professor to politician. I want to share three main observations.
First, politics is more like a team sport. As researchers, we are mostly judged on individual performance. It is like the difference between speed skating and hockey, if you will permit me to compare to a Canadian sport most Brits do not play. Ice hockey—not field hockey!—with skates and masks and sticks and a puck. In ice hockey, as in politics, you don’t always have the puck. You must rely on others. You win or lose as a team, and when the team loses, it doesn’t matter how right you are about the facts.
Second, politics leaves far less time for thinking. As a Minister, I must constantly act: yes to this policy, no to another. I must constantly answer: to journalists, to friends, to foes. Politics demands doing. There can be a real trade-off between speed and perfection, and speed is often crucial.
Which is why I think it is all the more important that, before I entered politics, I had many calmer years to think about public policy and my principles. I recall that Nelson Mandela used to say that one upside of all his years in prison was that he actually had “time to think”, time he no longer had in politics. Universities are, in most respects and most cases, different from the gallows, but there is a way in which a life of deliberate thinking was an ideal preparation for politics.
When I am under intense pressure pushing me one way or another, with little time to think, I do not forget what I believe, and why I believe it. In a storm, the temptation for a politician is to turn into a leaf, flying whichever way the wind blows hardest. But what is convenient is rarely necessary or right.
Third, and finally: in politics, process matters as much as policy. As a professor, as a researcher, my focus was sharing my best answer. In politics, there is more consultation and more listening to others. I spend at least 80% of my time listening.
There are many good reasons for this. One has to be humble in government: we don’t have all the answers. So we must listen to gather better ideas. Sometimes, who knows, there are professors out there with intelligent things to say. As a general rule, policy-making processes that are inclusive, respectful and representative of diverse interests and opinions lead to better results.
But process also has value in itself. Citizens value the ability to have a voice in consultations leading to policy. Economists tend to overlook this, or at least I did.
A meaningful consultation process is also key to build support for a final outcome. It is true for economic policy like it is true in a courtroom. You may not get the result you want, but the outcome gains in legitimacy.
In my experience, consultation motivates those who are doing the consulting, as well as those who are consulted. Continuous engagement favours people-oriented policies, by reminding public officials why they must work hard every day. Canadians also benefit from reminders that better is always possible, and continuous engagement fuels that hopeful spirit.
3. The Challenge of Inequality and Canada’s Middle Class
Now I’d like to speak about the central policy challenge I am confronting as a Minister. This is a challenge not only in Canada, but also in the United States, in the United Kingdom, and all over Europe. The challenge is vast inequalities among our citizens, and the threat this poses for the well-being of middle class families. The challenge is serious, and the threat is real.
Among the symptoms, if you hadn’t noticed, is a nasty tide of populism, in places near and far. When people become convinced that the economic system is fundamentally unfair, that the game is rigged, that equal opportunity is a cruel mirage—that’s when people get angry.
That’s when people start looking for scapegoats. That’s when demagogues start pointing their finger at people with a different skin colour or accent or religion, and saying, “this must be your fault.”
When hardworking people feel left behind—when prosperity is reserved for the few, not for the many—when fear eclipses hope—that’s when people become more interested in building walls than bridges, and we all lose.
The truth is that we are in a time of economic turmoil, and it is not going to end anytime soon. Powerful global market forces are at work. Ever more rapid technological change and continuing globalization mean that disruption will continue.
But the good news is that governments are not powerless. Policymakers are not omniscient or omnipotent, but our actions can make all the difference. We can implement policies that manage the changes, that protect the vulnerable, that make our societies more fair. As a Minister, this is what I have been trying to do for Canada.
i. The situation in Canada
I would now like to give you a broad sense of inequality in Canada, as well as about the steps that my government has taken to foster greater economic and social inclusion of all our citizens.
Income inequality in Canada, as measured by the Gini coefficient, increased significantly between 1989 and 2014 [from 0.281 in 1989 to 0.311 in 2014]. This was largely fuelled by rapid growth in the highest incomes.
In his recent paper on income inequality, Michael Veall, an economics professor at McMaster University in Canada, notes that the share of total national income belonging to the richest 1% rose from 8% to 12% between 1980 and 2010—a considerable increase. By comparison, in the United Kingdom, the share of the richest 1% saw a similar trend over a similar time span, from 6% to 13%. In the United States, it went from 9% to 19%, and, in Sweden, it went from 4% to 9%.
In a paper written with my last master’s student, Mathieu Pellerin, we found that inequality in hourly wages among full-time workers doubled between 1980 and 2010. This rising wage inequality could largely be explained by the growth of the top 0.1% of full-time hourly wages.
My teacher Tony Atkinson spent a lot of time thinking about incomes of the top 1%, and what it meant for our societies. In Canada, over the last thirty years, the incomes of the richest 1% have risen far faster than the incomes of the 99%. The annual median wages for Canadians, adjusted for inflation, have barely grown in forty years. For most people, the costs of essentials like rent, childcare and tuition are growing faster than their paycheques
So Canada’s middle class families feel squeezed, and with good reasons. My job, and the priority of my government, is addressing their concerns. Success would mean inoculating Canada against the misguided populism we have seen elsewhere. We are trying to show that inclusive growth is possible, and that it works.
In Canada’s last election, we promised to promote more inclusive economic growth. We also promised to improve social inclusion of more vulnerable groups, such as Indigenous people, Canadians living in the far North, Canadians living with disabilities, women, children, immigrants, seniors and the LGBTQ2 community.
ii. Policies matter
Now let me tell you about some of the policies we have implemented. I will focus on changes with respect to taxes, children and seniors, and social infrastructure.
One of the first actions our government took was to reduce taxes for middle class families and increase them for the wealthiest 1% of Canadians. 9 million middle class Canadians have benefited from a significant tax cut, while the richest are paying a bit more.
In addition to these tax changes, we made major policy changes aimed at children and seniors.
Last July, we introduced a new Canada Child Benefit, which goes to parents to help pay for the costs of raising children. It is Canada’s most significant social policy innovation in a generation.
This benefit is far more simple, generous and equitable than the hodge-podge of tax credits and benefits it replaced. 9 out of 10 Canadian families now receive greater support than before, but millionaires with children are no longer receiving checks from the government.
The families of nearly 300,000 children will be lifted out of poverty in the short term. Canada’s child poverty rate is expected to fall from 11.1% to 6.7%.
This will mean the lowest level of child poverty in Canadian history.
Canada has also renewed its support for its seniors, whose income security has suffered in recent times.
Increasing longevity, decreasing accessibility to defined-benefit pension plans, an aging population and changing labour market conditions have undermined income security for more Canadian seniors.
Looking at current numbers, one in four families approaching retirement is not saving enough. Many seniors work their entire lives and then retire into poverty.
All Canadians should have access to a dignified and secure retirement. That is why, as I alluded to earlier, we restored the age of eligibility for Old Age Security benefits to 65.
We also enhanced the Canada Pension Plan, to increase the share of pensionable earnings that workers receive from the Plan’s retirement pension. This will reduce the number of families at risk of income insecurity in retirement from 24% to 18%.
All Canadian workers will benefit from this enhanced pension plan, particularly the middle class and working poor. The change will lead to more equal access to a decent pension plan, greater work and saving incentives, greater support for lower-income workers, and greater income security for hundreds of thousands of Canadian seniors.
Finally, we significantly increased direct payments to seniors, through what we call Old Age Security and the Guaranteed Income Supplement. All told, we increased income security for 900,000 seniors and lifted 13,000 seniors out of severe poverty, 90% of whom are women.
I should pause here to say a few more words about my friend Tony Atkinson. He was a strong advocate of “basic income”, the idea that every person should unconditionally receive some minimum income support. Canada now effectively has a basic income for families with children and a better basic income for seniors. As a Minister, I was proud to contribute to both of these achievements in the last year.
d. Social infrastructure
Beyond our changes to tax policy, and our increased support for children and seniors, my government has dramatically increased investments in social infrastructure. We are making historic investments in childcare, housing and public transit. This is the right thing to do, and it is the smart thing to do.
My government has been willing to go into deficits to do all this, because we see this infrastructure as an essential investment for our future, even while we keep an eye on our debt to GDP ratio.
The justification is clear: better income support, better childcare, better housing, and better transit are key ways to give every Canadian a real and fair chance to succeed. And a fairer Canada will be a more prosperous Canada.
Let me now conclude.
I believe that my training in economics has made me a far better politician. My political values are built on core ideas in economics: efficiency, equity, and simplicity. I was also trained to value transparency, because asymmetries of information often lead to bad results, and to value accountability, because everyone should have the right incentives to do the right thing.
Efficiency, equity, simplicity, transparency and accountability: not much of a slogan, but a recipe for good government.
Let me end with a simple observation: the link between what I learned as a student at the LSE, the reason why I entered politics, and what I’m trying to achieve as a politician are all fundamentally linked. I care about facts, and I care about what they mean for people and policy.
The facts matter. That, in three words, is my philosophy, as an economist and as a politician. The facts matter, especially the facts about how policy affects the most vulnerable.
Thank you very much.