Poverty Policies Tend to Impoverish

Commentary, Environment, Peter Holle

While poverty continues to decline in Canada and in Manitoba, there is still ample room to bring some new thinking to this important subject. For many years, the poverty debate has been stale and predictable because old ideas are continually recycled with little or no result. We need to break the mould and to confront one usually unmentioned fact – bad government policy hurts the poor more often than do frequently trumpeted market economy depredations as free trade, technological progress or globalization in general.

How does poor government policy harm the poor? It harms them when it embraces policies that stunt economic growth. In Canada, and especially Manitoba, these include high taxes, a growing dependence on transfer payments, and regulatory policies that discourage investment and job creation. Ironically, many old-school thinkers embrace high taxes, expansive government, extensive labour market regulation and protectionism as the path to less poverty. Extensive research, however, shows that the opposite policies reduce poverty by expanding economic growth and opportunity. Climate change politics is the latest blip on the policy radar screen with great potential to hurt the poor by artificially raising energy costs and shifting jobs to countries such as China and India.

Governments frequently use tax policy to discourage consumption of certain goods, but these policies are regressive. Taxes on energy, alcohol and tobacco disproportionately affect low-income earners. A study from the National Center for Policy Analysis, in Dallas, shows that people who earn $24,000 a year spend proportionately more than twice as much on gasoline as those who earn $120,000. The researchers also found that the bottom fifth of earners who buy alcohol spend three times as much proportionately on alcohol than do the highest earners. Canadian low-income earners, facing even more onerous gasoline and alcohol taxes, are worse off.

Let us take the discussion down to a more micro, person-on-the-street level. Poor government policy hurts the poor in at least two ways. First, it creates artificial barriers to opportunity. Second, it raises costs or degrades services for those at the bottom. Both are ironic side products of increasingly politicized policy structures wherein government spending flows into programs and policies that cater to, or have been captured by, narrow voting interests.

Unfair barriers include occupational licensing and regulation, which limit entry into a profession or job area. Unions influence rules around apprenticing to limit the number of jobs “open” in the skilled building trades. Business interests use regulations to cartelize the taxi industry, effectively blocking entrance into an activity ideally suited to small-business entrepreneurs. The price of a taxi shield is about $225,000 in Winnipeg and rising. How many poor people can pay that? In addition, lower income people without cars pay disproportionately more for artificially high taxi fares.

Something similar occurs with supply-managed marketing boards. Forget farming in any of the cartelized sectors. When the “licence” to own a cow is close to $30,000, it takes millions of dollars just to get permission to be in business. More damagingly, these cartels artificially raise the price of healthy foods, again disproportionately affecting lower income people.

Consider the impact of badly conceived zoning, housing-market interventions and land-use regulations. When a discount, big box store such as Wal-Mart arrives, it benefits lower income earners because cheaper prices increase their spending power. Yet, interest groups frequently use zoning rules to block or stymie the latest retail concepts. Restrictive land-use regulations and planning fads such as Smart Growth jack up house prices and remove home ownership options for lower income groups. Rent control hurts the poor by freezing and then shrinking the supply of affordable housing, while subsidizing the middle-class renters who happened to be around when the controls were imposed.

Manitoba’s artificially cheap electricity prices disproportionately subsidize the middle- and upper-class owners of large homes.

Low-income people are hit disproportionately hard by expensive public sector monopolies in health care and education. Often politically inactive, with little education, they lack the middle-class networks that assist queue jumping in the health system. They are stuck with public schools that are frequently more enamored of the latest social engineering fads than imparting solid numeracy and literacy skills that are the key to rising incomes later in life.

The poor also pay in other ways for monopoly services. By spending more than is needed to produce goods and services, for example, expensive health and education systems or unionized floodway projects, governments waste money that could be invested to help the poor. Likewise, squandering money trying to change the weather by mandating expensive energy forms or spending billions to pump CO2 into the ground will use up resources that could be targeted at low-income groups.

More than anybody, the poor have a stake in quality public policy; lower, less regressive taxes; fewer regulations; and more efficient, effective service delivery that focuses on the broad interests of the consumer, not the narrow interests of politically organized provider groups. We need fresh, more effective approaches to helping the poor. We need to remove barriers to participation in the economy and to change policies that disproportionately penalize and harm the low-income community.