The Government

& The Corporation:

A united solution for security & prosperity in Canada & the world

The story of Canada is a story of middle-ground success. While political commentators are quick to label any perspective as leftist, rightist, authoritarian, or libertarian, Canadian policies are generally paradigms of tolerance and compromise if juxtaposed against that of other nations around the world.

The eminent challenge for any government is to balance the management of all issues of significant public concern and to ensure the efficiency of the process given the resources available. From health care to national defence to homelessness, the range and the depth of issues that affect Canadians are overwhelming. As a result, we must choose to neglect many worthy causes or so it seems.

If I were the prime minister of Canada, I would propose an intimate collaboration between the government and the corporation entirely distinct from the typical privatization scheme, which would simultaneously and synergistically improve social welfare and shareholder value. My model for sharing the benefits and the costs of social projects would embody a new genre of public-private-partnerships that truly fulfills social as well as economic objectives.

The social security program is a defining feature of any nation. From the level of benefits to the nature of incentives to funding methods, it is a clear reflection of the priorities of our society. Like the corporation, the government should not promise benefits that it cannot afford to sustain and the 1998 amendments to the Canada Pension Plan (CPP) addressed this issue. The key to a higher level of benefits in the long run is to reduce costs without reducing public commitment.

In April 2004, the CPP Investment Board introduced the Active Overlay Program to retain the talent of world-class investment managers in a cost-effective and risk-controlled manner. As prime minister, I would institute more private elements within a public social security structure to increase flexibility and reduce costs, hence achieving greater public support in an area where there are private alternatives.

In this brave new international landscape, we face the urgent task of regaining a position of influence. True respect from other nations is earned not through building devastating weapons, but through building an exemplary society. Given the recent profusion of government and corporate scandals at home and abroad, we have every incentive to devise and implement new roles for the government and the corporation. The knowledge and experience that we would acquire in this process of innovation would allow Canada to assume intellectual leadership in the world.

The Corporation as a Partner in Achieving Social Objectives

In “Top 200: The rise of corporate global power”, Sarah Anderson and John Cavanagh of the Institute for Policy Studies compared corporate sales and gross domestic products in 1999 to arrive at the conclusion that, amongst the a hundred largest economies of the world, 51 are companies while 49 are nations. Even though its actions have obvious and substantial social impact, the corporation has remained an almost purely economic construction with purely economic objectives.

Every chief executive officer and business school student should watch “The Corporation”, the 2003 film directed by Jennifer Abbot and Mark Achbar, featuring Noam Chomsky, Michael Moore, Naomi Klein, Howard Zinn and others. Although definitely a leftist documentary, the film cannot be simply dismissed as such and, in fact, reflects an increasingly popular sentiment.

The film’s key notion is humorous yet incredibly legitimate. The corporation enjoys many of the same rights as a person under the law. Yet the operational principles of the corporation cause it to be self-interested, inherently amoral, callous and deceitful. Hence, if analyzed as a person using the Diagnostic and Statistical Manual of Mental Disorders, the corporation would be considered a psychopath.

Even in the business community, there has been a long-standing controversy about the purpose of the corporation. In 1915, when Henry Ford attempted to spread the benefits of the industrial system by withholding some dividends, increasing the production and reducing the price of the Model T car, he found himself in court. Dodge v. Ford resulted in the decision that “a business organization is organized and carried on primarily for the profit of the stockholders”.

However, as the corporation performs an ever more critical role in our society, its legitimacy and access to resource depends ever more upon its willingness and ability to meet standards of conduct. Not only is the corporation expected to abide by the law, it is also expected to attend to social issues.

One successful strategy that integrates economic and social objectives is cause branding. Avon’s breast cancer awareness initiative funds early detection programs. ConAgra established over 160 cafes, each serving over 10,000 meals to hungry children each year. Home Depot donates materials to organizations that facilitate the construction of energy efficient homes. Timberland participates in environmental projects in local communities. Target donates one percent of target visa purchases to fund school equipment and trips. By embedding unique social commitments in their businesses, these companies have enhanced their corporate identity, reputation and personality. Meaningful connections with customers, employees and communities ensure the long-term success of these brands and their respective social projects.

The Government as a Catalyst for Corporate Social Responsibility

Successful strategies depend not only on the funds invested, but also on expertise in identifying creative social projects that are financially rewarding. As the problem of crowding emerges, the incentive for participation declines. As more companies around the world clamour for social consciousness, the government of Canada should endow Canadian companies with a competitive edge.

As prime minister, I would support research in creative strategies that meet traditional marketing goals while solving real problems in our society. I would provide financial encouragement for projects coordinated by companies and government agencies, as well as for studies at business schools to influence the next generation of business leaders.

As part of this process of innovation, the government must reinvent the means by which it provides services and grant companies greater access to a wider range of causes. The government should allow a company with a specific expertise to provide a specific service in a deal that is not driven purely by profit.

By specific services, I am not referring to building private schools, hospitals, or other establishments that would dislocate public institutions at the heart of communities. What I have in mind are smaller yet no less important tasks such as funding health awareness campaigns and extracurricular activities, as well as providing administrative, financial and technological services.

Currently, any initiative to further private involvement in public projects is encountering significant public opposition. Since good corporate citizens wish to enhance their brands, they are discouraged from participating in such public projects and instead choose safer strategies such event sponsorship. Furthermore, since involvement in such public projects puts reputations at risk, these projects are attracting companies that are not keenly aware of their reputations. Since such companies do not fully appreciate the difficulty and costs involved in rebuilding damaged reputations, they do not have strong disincentives to act to the detriment of the public. Hence, the key is to start small and grant good corporate citizens opportunities to distinguish themselves. As we develop expertise in this new genre of public-private-partnership and establish trust between the parties involved, we can tackle greater challenges.

As prime minister, I would campaign for consumer social awareness as well as enhance access to relevant information by increasing the availability and visibility of public documents. Fundamentally, the consumer can exert power over the corporation and is thus responsible for the actions of the corporation. This pressure would impart a stronger enforcement mechanism than further regulation, which would only amount to escalating implementation costs and stimulate corporate behaviour that follow every rule without observing any principle.

As the consumer demands an increasingly higher level of social responsibility from the corporation, this pressure would actually provide a check on government conduct. Politicians in positions of power would think twice about engaging in indecent activities with affiliated businesses, if the exposure of such actions would result in the businesses being punished in sales or financial markets.

Renewing Our Social Security Program

I believe that Canadians need financial freedom to truly enjoy the other freedoms so proudly listed in our charter. However, in our ever more complex world, it is becoming ever more difficult to understand the real costs. As prime minister, I would propose a free curriculum in personal financial management for all Canadians. Part of the curriculum would promote better understanding of the social development programs offered by the government, because such programs cannot thrive without public appreciation. In particular, the social security program can be an extremely effective policy tool. As prime minister, I would renew our social security program to make transfers within the system as explicit as possible.

Currently, the CPP Statement of Contributions can be requested once in any 12-month period and offers an estimate of monthly pension at age 65 based on average earnings since age 18. The statement does not provide estimation options such as retirement at age 60 or age 70, increasing or decreasing earnings and so on.

As prime minister, I would introduce individual accounts into our social security program to yield a greater sense of personal ownership and financial responsibility. This structure would make it easier to envision how contributions grow into future income. However, I believe that the government’s role as a risk manager is a very important one and that market risks should not be transferred to the individual. Hence, I would propose an account-based program with guaranteed real rate of return as a first tier, with a minimum guarantee pension to prevent poverty.

A second tier would allow a percentage of the contributions to be invested with private fund managers, such as the four currently engaged in the Active Overlay Program as of August 2004. This would empower the individual with choice as well as the ability to manage his or her overall savings portfolio. The second tier would garner support from those who oppose the current program due to its rigidity. Ultimately, wider public appreciation for the program would ensure the stability of its future.

Although some actuaries have shown that the financial burden of the CPP can be greatly reduced by increasing the minimum retirement age, I do not support the concept of forcing Canadians to retire later. However, given the projected demographics, we need to provide stronger incentives for later retirement to increase the labour supply and that can be achieved by using credits within an account-based program.

Dollar-valued credits would be much more meaningful to the general public than the current practice of manipulating the contributory period. Credits can also be granted for childrearing, engaging in tertiary education and so on. Another advantage would be the ability to distinguish between those who experienced unemployment from those who chose to work less to gain more leisure.

Regaining Our Position of International Influence

Canada’s security and prosperity are in many ways attributable to the flow of talent as well as goods and services across borders and oceans. While increased military spending can be justified if it makes Canadians feel safer against violent acts, it is not a long-term solution. We cannot expect to reap gains from trade while building ever-higher fences around ourselves.

So long as there is one dissatisfied group that can be provoked to extremism, this world is not a safe place. While the satisfaction of each and every group is an impossibility, efforts of the international community to find and fund real solutions give hope to all. Conversely, the building of fences accentuates the desire of developed nations to insulate themselves from the harshness of reality. Do we need another wakeup call?

Given the situation in Iraq, some have accused the UN of acting as nothing more than a welfare agency. While it is satisfying to overthrow a dictator or two, freedoms and rights cannot exist where more basic needs cannot be met; responsible governments and fair judiciaries depend on resource-intensive processes. For over a decade, the UN has been in a state of financial crisis. Many member states have not paid full dues and cut donations to voluntary funds. With the decline of multilateral diplomacy and the rise of the multinational corporation, it is time to consider a different approach.

In 2000, Secretary-General Kofi Annan established the Global Compact (GC) to bring together companies, governments, labour, civil society organizations and UN agencies. The GC is a voluntary initiative, not a regulatory instrument, and seeks to promote principles of human rights, labour standards, environment and anticorruption through dialogue, learning, partnership projects and networks.

As Canadians, we regard ourselves as committed to UN-inspired ideals. Yet, as of July 2004, the GC has attracted 19 Canadian companies, versus 342 French companies and 218 Spanish companies. As prime minister, I would secure high-level government engagement and facilitate the building of regional and sectoral networks, which in turn eases the sharing of information critical to the participation of Canadian companies, thus reestablishing Canada as a role model for UN participation.

Changing the world starts at home. As prime minister, I intend to export our social ideals while exporting our goods and services. As we enable Canadian companies to find meaningful roles within the Canadian society, we will set higher international standards for corporate social responsibility. Also, by conducting cutting edge business research, the strategies that we develop will establish our government and our companies as thought leaders of the world.

Conclusions

If I were the prime minister of Canada, I would bend the weakness of the government against the failing of the corporation to produce a force that would change Canada and the world. Given more efficient models for providing services, more progress can be made on more issues that concern Canadians. Given more comprehensible and flexible social development programs, more Canadians can take their standards of living into their own hands. Finally, our reinvented social ideals and economic strengths will enable us to tear down fences and build security and prosperity in our global village.

Just as Sir Wilfrid Laurier sought “to consolidate Confederation and bring our people, long estranged from each other, gradually to become a nation”, I aspire to unite public and private interests, long estranged from each other, gradually to become a nation.

Wendy Yu

Waterloo 2004