Wednesday, December 13, 2017

Canadian Immigration Policies: Blueprint for Europe?

Abstract: In Europe discussions about immigration policies have been wide-spread and heated ever since a flood of illegal immigrants have reached Europe’s shores and caused problems with labour markets, housing, fiscal, social and cultural institutions. Some commentators see the solution to some of these problems in the adoption of the Canadian model for the selection of immigrants. This paper contributes to this discussion by a description of current Canadian immigration policies and a discussion of the negative economic and social effects it has produced. It concludes with a presentation of reforms of the existing system that have been proposed and speculates why politicians have been unwilling to adopt any of these reforms.

Note: I thank Martin Collacott and Patrick Grady for their helpful comments on an earlier draft of this paper, a summary of which has been published in German in the Swiss magazine Weltwoche on December 30, 2017. The article has been accepted for publication in the ifo DICE Report - Journal for Institutional Comparisons,  Forum on the special topic “Labour Migration Policies” scheduled for publication in March 2018 by the ifo Institut - Leibniz-Institut fuer Wirtschaftsforschung an der Universitaet Muenchen. DICE Reports can be found at

The paper can be found at the Social Science Research Network website 

JEL Classification: F21, F22, J6, O4, O5

The European Community and its member countries are searching for solutions to the problems caused by the ongoing flood of migrants from abroad. One solution discussed widely involves the adoption of the system used by Canada in the determination of the number and characteristics of migrants admitted (Slater 2015 and Meardi 2016). In considering the adoption of the Canadian model, policy makers need to know that while it promises many benefits in theory, in practice it is seriously flawed and might not serve Europe well.

The model has the following basic features. The government annually submits an immigration target for the year to Parliament, which is routinely approved without debate. In 2017 the target was 300,000, up from 280,000 the year before and 240,000 on average during the years 2006-2016. It is slated to rise to a 350,000 by the year 2020. Since the mid-1980s, the target has been set to have immigrants represent about .75 percent of the existing population.

The immigrants are selected by Canadian officials from a large pool of applicants and are granted visas after assignment to four different categories (Government of Canada (1)), the largest of which represents “Economic immigrants”, who are mainly skilled workers but also includes their accompanying spouses, partners and children, investors, the self-employed, caregivers and entrepreneurs. The economic immigrants make up 58 percent of the total.

The second class are the “Family class immigrants”, one quarter of which are parents and grand-parents and three quarters are the spouses, partners and children of immigrants who had not accompanied their spouses when first they settled in Canada. They made up 28 percent of the total while “Refugees” (also known as Refugee Claimants) 13 percent and “Others” one percent of the total.

The economic migrants are selected through the use of a points system (Immigration Canada (2)) that assigns a maximum of 25 for the level of education, 24 for language proficiency in English or French, 21 for work experience and 10 each for age, arranged employment and adaptability. For admission, the economic migrants need to have at least 67 out of 100 possible points and, like all immigrants, must meet health and security requirements. A small number of economic immigrants are admitted without use of the points system by provincial governments to meet special local needs.

Recently, this system has been modified (Semotiuk 2016) through the creation of a class of applicants with “Canadian work experience”, which in turn was modified by the introduction of the class qualifying for “Express Entry”. The main goal of these modifications has been to enable a large number of foreign students who have completed a university education in Canada to receive immigrant visas more easily and quickly since through their educational achievements they have demonstrated their knowledge of English or French and likelihood of economic success.

Applicants in the investor class (Government of Canada (3)) do not have to pass the points test and until 2014 were admitted if they could show that they have business experience, a net worth of at least CAD $1.6 million and will invest at least CAD $800,000 in Canada. A new program (Canada Visa (No date)) requires that they have a net worth of at least CAD $10 million and the funds to invest CAD $2 million for 15 years in the Immigrant Investor Venture Capital Fund.

Parents and grand-parents are granted immigrant visas if their offspring already in Canada commit themselves to cover their cost of living and medical care and the annual quota allocated by Parliament is not exhausted.

Canada’s handling of its international obligation for the admittance of refugees (Historica Canada No date) should be of particular interest to Europeans. Canada supports refugees escaping the turmoil of civil wars and unrest indirectly through financial grants to international agencies that operate refugee camps abroad. The idea is that these types of refugees will and should return to their home countries after the end of hostilities, where they have strong ties. It is believed that if they settle in Canada, they are likely to remain and are lost to their native countries’ reconstruction efforts.

Refugees who flee persecution, torture and the threat of death and reside in the international camps are interviewed by Canadian officials who travel to these camps. Under the 2017 plan, immigration visas are granted to 40,000 of the neediest of them. Refugees asking for acceptance at Canada’s airports have been very small in number relative to those resettled from camps abroad because of effective agreements with airlines to prevent boarding of potential claimants without a visa.

Canada has no problems protecting its borders from illegal immigration of the sort that plagues Europe. Canada’s long coast lines are difficult to reach by small boats from overseas and past experience shows that large ships will be turned away so that none have attempted access for many years. Agreements with international airlines have been used successfully to limit severely the arrival of asylum seekers at Canada’s airports.

The land border is in principle protected from the inflow of asylum seekers by the Safe Third Country Agreement with United States (Government of Canada (4)) under which refugee claimants can be turned back on the grounds that they are leaving a safe country and are shopping for access to more generous social assistance programs.

Canada’s government is proud that its policy of selecting immigrants without regard to their ethnic, racial or religious backgrounds. 

What Lessons for Europe?

So what aspects of the Canadian model could be used in the design of a rational and publicly acceptable policy for the European Union and its members?

The Canadian model has no information that could help in the design of dealing with Europe’s pressing problem of how to more effectively protect its borders from asylum seekers, how to deal with the perceived threat to its religious and cultural institutions and practices and to protect the public from terrorism.

The main appeal of the Canadian model to European policy makers stems from its presumed success in selecting immigrants who benefit their countries by raising the income of their populations, tax revenues and contributions to social insurance programs.

The first effect is the subject of much disagreement among economists. Conventional price theory suggests that the pay of immigrants equals their marginal contribution to output and as they use their income to buy an equal amount of goods and services, the incomes of native workers are unchanged. Some economists argue that the native workers benefit because immigrants offer them the opportunity to trade and by complementing them at work raise their productivity. The value of these effects is very difficult to estimate but at best is very small relative to the fiscal burden caused by the Canadian immigrants in recent decades.

The main cause of this fiscal burden is that Canadian immigrants who arrived after 1986 in the year 2005 had average incomes equal to only 70 percent and pay income taxes equal to only 54 percent of the average paid by other Canadians, while at the same time they absorbed the same amount of government services as did other Canadians in the form of free health, educational and social programs and through spending on the protection of persons, property, the environment and the many other spending programs characteristic of modern industrial countries. This information about the performance of recent immigrants is provided by Statistics Canada and is used by Grady and Grubel (2009) to consider their implication for government policy.

The difference between the taxes paid and benefits received by the average recent immigrant has been estimated in the Grady-Grubel study to come to about $6,000 per year. Considering the total number of immigrants in 2013, this difference implies that they imposed a fiscal burden of about $30 billion on other Canadians that year. This burden increases with the arrival of more and increasing numbers of immigrants.

The $30 billion equals about five times what Canadian governments spend on foreign aid and foreign affairs and equivalent to 70 percent of what they spend on the military and the protection of persons and property.

The idea that immigrants can prevent the pending insolvency of unfunded public pension program is illusory. Immigrants reduce the unfunded liabilities while they are young but increase them once they are retired. Computer simulations show that immigrants can reduce unfunded liabilities only if their numbers increase continuously to offset this aging effect. For immigrants to offer a solution to the problem of the unfunded liabilities, the annual inflows would soon reach unsustainable levels (Bannarjee and Robson 2009).

What Explains Failures of the Model?

One explanation of the poor economic performance of the system is that in 2015 only about 30 percent of all immigrants, the so-called principal applicants have passed the points test. The other 70 percent consist of their spouses and children, parents and grand-parents, and refugees whose economic prospects have not been assessed.
Investors, who might be expected to have high incomes and pay high taxes, fail on both grounds because many of them invest their money in housing rather productivity-enhancing business capital, continue to live in their native countries and pay income taxes only there. Their spouses and children live in the houses they have purchased and live on non-taxable transfers from the investor while they use Canada’s free health, education and other social programs.

Because of these problems, the system described above was changed in 2014 to where investors now face much stiffer requirements to qualify for a visa, which has led to a dramatic reduction in number of investor immigrants and the damaging practices described.
Another explanation of the poor economic performance of recent immigrants is that the quality of their education and skills required by the Canadian government (Government of Canada (5)) do not actually meet Canadian standards because the foreign institutions of higher learning used to document the immigrants’ educational attainment levels themselves have lower standards.

For example, Canadian employers with immigrants who have an engineering degree from an Asian university often use them only to prepare engineering drawings rather design buildings and bridges. Another example involves immigrants with certificates qualifying them to work as medical doctors. Most of them are unfamiliar with Canadian institutions, practices and pharmaceutical products and take a long time to pass Canadian examinations qualifying them to practice medicine in the country.

Further adding to the poor economic performance of immigrants admitted on the basis of their high selection points is that some may have used forged certificates of educational and language attainments (Green 2009). No reliable estimates exist of the magnitude of this problem but may be inferred from the fact that many small shops located around the Canadian High Commission in Delhi are doing a thriving business selling such certificates and the internet offers many business addresses for the purchase of fake certificates (Diploma Company (no date)).

Labour market discrimination has been cited as an explanation of the low incomes of recent immigrants. Such discrimination may exist, but its importance is diminished by the fact that for some time many businesses in Canada have been run by immigrants who according to the work of Nobel laureate Gary Becker (summarized by Murphy (2015)) may be expected to hire underpaid immigrant workers to maximize their profits but who in the process raise the wages of the workers suffering from discrimination by other Canadian employers.

Other Problems with the Canadian Model

Canada’s immigration model has had some other effects that do not increase the well-being of the general population. Thus, as the data on incomes show, immigrants have increased the supply of low-skilled and low-paid workers, many of which filled jobs that Canadians are unwilling to accept at existing wage levels. This fact is praised widely, but it also has an important down-side.

These immigrants depressed the wages of all low-skilled workers and increased the incomes of employers and professionals. Abdurrahman Aydemir and George Borjas (Aydemir and Borjas 2007) concluded that immigration decreased the earnings of Canadian high school dropouts relative to the earnings of workers with at least a college diploma by at least 12%. As a result, the inequality of Canada’s income distribution has increased significantly.

The hiring of low-skilled and low-wage immigrants has had an additional negative effect. It reduced the incentives of employers to invest in labour-saving capital and technology. Such investment would have raised the productivity and wages of Canadian workers and made them more willing to accept the jobs that previously they had shunned because they paid them too little. These benefits could have been attained while the profits of employers remained unchanged.

Absorptive Capacity and Parliament

Parliament’s setting of the annual number of immigrants has not worked well for Canadians as there are important indications that it exceeds the country’s economic and social absorptive capacity.
Most of the immigrants have settled in Montreal (14 percent), Toronto (40 percent) and Vancouver (15 percent) to join communities of people from their home countries (Metro Vancouver (no date)). Virtually none have settled in Canada’s vast, thinly populated areas because they are not well suited for human habitation and have been losing jobs and residents since farming has become increasingly mechanized. 

Every week about 250 immigrant families have been adding to the demand for housing in the Greater Vancouver area and 400 in Toronto (Government of Canada (2)), (Statistics Canada 2017). This added demand has contributed significantly to the increase in the cost of housing in these two cities, which is viewed by many to have reached a crisis level. Speculators, who are often blamed for these price increases merely are anticipating their continuation and move forward in time the expected future excess demand for housing and price increases caused to a considerable degree by the large number of immigrants.

Importantly, these large additions to the population in these large cities have also taxed the capacity of the cities’ road, water, sanitary, transit, recreational, medical and educational facilities to where traffic congestion, wait-times for medical treatment and access to public recreational opportunities facilities impose great economic costs and inconveniences on the population.

Advocates for the present level of immigration argue that all of the costs just described would disappear if the supply of transportation infrastructure, housing, hospitals, schools etc. kept up with demand. These advocates blame governments’ inadequate funding and excessive regulations for the existing problems (Lammam 2017). This proposition is valid but misses the point that the political system has now proven for many years that it is incapable of providing the funding and of deregulating the construction industries to prevent the housing crisis and crowding of public facilities. In addition, the fiscal burden caused by recent immigrants contributes to the scarcity of funds for government spending on housing and infrastructure.

Yet, the solution to, or at least alleviation of these costly burdens on Canadians could be achieved by a number of policy changes, which were suggested to me in an email by James Bissett, a former Ambassador and former head of Canada’s immigration service run by the federal government:

“Replace the judgement of civil servants in the selection of immigrants with that of Canadian employers who have powerful incentives to hire only applicants whose wages match their productivity, but who, in order to ensure that the taxes they pay at least match their use of public services, are required to hire only immigrants whose wages are at or above the average in the region in which the employers are located. Investors should be required to put their funds into productive business investment and pay taxes on their incomes abroad. In the future, parents and grand-parents should not be granted immigrant but only visitor visas.”

Another suggested solution would be to reduce temporarily the number of annual immigrants significantly to, say 50,000, which would cease mass immigration but allow the beneficial flow of migrants that have skill sets they can use to serve the interest of the economy and society. After the construction of housing and infrastructure has caught up with demand and the absorptive capacity of the country has been determined in the light of recent developments, the number of immigrants per year can be changed to the optimum level.
Politicians have ignored the call for the kinds of reforms suggested by Bissett and for the temporary reduction in immigration levels that would make immigration policies properly serve the public interest. Why have politicians ignored these suggestions for reform? The answer is found in public choice theory (Lee 2012): Politicians are afraid that powerful and highly motivated interest groups will reduce their financial and electoral support and thus threaten their parties’ election chances.

These interest groups consist of immigrants who want to see their communities grow in numbers and political influence; employers wanting cheap labour and larger markets for their output; the construction and real-estate industries benefiting from the growth in the residential housing market; the owners of homes who enjoy large capital gains on the property; the builders of transportation infrastructure facilities who are needed to deal with traffic congestion; the professionals who enjoy the larger markets for their services as supervisors in businesses teachers and professors; the civil servants and welfare workers who are paid to serve the needs of immigrants and the vocal groups of idealistic individuals who believe that it is Canada’s responsibility to reduce poverty and suffering in the developing world and whose views are spread widely by the media.

Lined up against this collection of powerful, rich and idealistic supporters of the present immigration policies are the overwhelming numbers of Canadian voters who are too busy working and caring for their families to have the time to inform themselves about the burdens immigrants impose on them, especially since the interest groups and politicians with the help of the media are very effective in hiding or denying the damage mass immigration is doing to their interests (Munger 2017).
Canada’s first-past-the-post electoral system discourages the foundation of an anti-immigrant party of the type found in a number of European countries where proportional representation has allowed such parties to achieve substantial electoral successes and seats in parliament and which have influenced the debate over and the design of immigration policies. Canada’s immigration policies will remain unchanged at least until a reform of the electoral system, which the present government has promised in its election campaign but has failed to implement after two years in office.

Aydemir, Abdurrahman and George J. Borjas (2007), “Cross-Country Variation in the Impact of International Migration: Canada, Mexico, and The United States”, Journal of the European Economic Association, June, 5 (4): 663-708
Bannerje, Robin and William Robson (2009), “Immigration’s Impact on the growth and age structure of Canadian Workforce”, Chapter 7 in Grubel (2009).
Canada Visa (no date), “Canada Business Immigration - Investor Category” found at, accessed December 1, 2017
Government of Canada 1 (no date), “Do you want to come to Canada, or extend your stay” found at, accessed December 1, 2017

--------------------------- 2 (no date), “Recent Immigrants in Metropolitan Areas: Canada – A comparative Profile based on the 2001 Census”, found at, accessed December 1, 2017
--------------------------- 3 (no date), “Immigrant Investor Program” found at, accessed December 1, 2017
--------------------------- 4 (no date), “Canada-US Safe Third Country Agreement”,, accessed December 1, 2017
--------------------------- 5 (no date), “Have your education assessed – Skilled Immigrants”,, accessed December 1, 2017
Diploma Company (no date), “Fake Diploma India, Can$ 252.13”, found at, accessed December 1, 2017
Grady, Patrick and Herbert Grubel (2015), Immigration and the Welfare State Revisited, Vancouver: The Fraser Institute, accessed December 1, 2017
Green, Norma (2009), “Fake Documents Flood Canada Visa Office in India”, Immigration Watch Canada, found at, accessed December 1, 2017
Grubel, Herbert, editor (2009), The Effect of Mass Immigration on Canadian Living Standards and Society, Vancouver: The Fraser Institute,, accessed December 1, 2017
Historica Canada (no date), “Refugees”, The Canadian Encyclopedia, found at, accessed December 1, 2017
Immigration Canada (no date), “Who Qualifies for Canadian Permanent Residence/Skilled Worker Immigration?” found at, accessed December 1, 2017

Lammam, Charles and Hugh MacIntyre (2017), Myths of Infrastructure Spending in Canada, Vancouver: The Fraser Institute, found at, accessed December 1

Lee, Dwight R. editor (2012), Public Choice, Past and Present: The Legacy of James M. Buchanan and Gordon Tullock, Springer Science & Business Media, Dec 9, 2012

Meardi, Guglielmo, 
Antonio Martín Artiles and Axel van den Berg (2016), “A Canadian Immigration Model for Europe? Labour Market Uncertainty and Migration Policy in Canada, Germany and Spain”, in Jon Erik Dølvik, Line Eldring(ed.) Labour Mobility in the Enlarged Single European Market (Comparative Social Research, Volume 32) Emerald Group Publishing Limited, pp.99 – 124
Metro Vancouver (no date), Immigration and Diversity, found at"immigrants", page 2, accessed December 1, 2017
Munger, Michael C. (2017), “On the Origins and Goals of Public Choice Constitutional Conspiracy?”, Independent Institute, June 29 found at, accessed December 1, 2017
Murphy, Kevin (2015), “How Gary Becker saw the scourge of discrimination”, Chicago Booth Review, found at, relatively low standards of
Semotiuk, Andy J  (2016), “Immigration Minister Should Restore The Canadian Experience Class”

Slater, Joanna (2015), “Germany looks to Canadian model for immigration policy inspirationThe Globe and Mail, March 9
Statistics Canada (2017), “Canada at a Glance: Population”, found at, accessed December 1, 2017

Canada’s Housing Strategies in Perspective

The federal government’s newly announced housing strategy is a sham. It will do nothing to end the rapid rise in the cost of housing because it does not address excess demand, which according to the iron law of economics, drives up prices. The excess demand has persisted for many years because the supply of housing produced by the private sector has been insufficient to meet the demand.

This failure of the private sector is due mostly to municipal regulations that require the completion of red tape and use much costly time to issue building permits, prevent the creation of greater population density and the construction of housing on land dedicated to other uses like agriculture and parks. Municipal politicians are aware of this problem, but easing them has been prevented by the political opposition from influential voters.
Municipal politicians have faced less opposition to the imposition of taxes on speculating foreigners, who have no votes in elections, but this policy has no impact on supply. Speculators typically hold their purchases for only a limited time since they have to sell their investments to realize their profits. As a result, speculators merely move forward in time price increases that would otherwise have taken place later.

At the same time municipal politicians maintain rent controls, which protect them from the loss of votes by renters but which reduce the supply of housing
Municipal politicians unwilling to deregulate the housing sector or eliminate rent controls have pressured the federal government to end the housing crisis by adopting policies that increase supply. The response by Ottawa has been the adoption of a “housing strategy”, which was announced with great fanfare. It promises to lead to the construction of up to 60,000 new homes over the next 10 years, the repair of up to 240,000 existing community homes and the payment of rental subsidies of up to $2,500 annually to 300,000 needy families.

The policy adds only 600 new houses a year to the supply in all of Canada, which is shown below to be trivial given the annual additions to demand. The renovation of existing stock will not increase supply and subsidies to renters will, if anything, increase the demand for housing.

The federal housing strategy is silent on the demand for housing, which is determined mostly by the growth in population through natural increases (birth minus deaths) and immigration from abroad. In recent years the growth in population has been dominated by immigration, which during the years 2006-2016 (net of emigration) has increased Canada’s population by 240,000 annually, which is equal to 65 percent of the total increase of 3.8 million (

Assuming that on average three immigrants make up a family requiring housing, immigration policies have added an average 81,126 housing units a year to the country’s demand. This figure will rise to 120,000 a year by 2020, when immigration will reach the government target of a maximum 360,000. That year the federal housing strategy will provide 6,000 housing units above those created by the private sector, which clearly is a sham.

However, this is not the end of the story. Immigrants tend to settle predominantly in the metropolitan areas of Vancouver, Toronto and Montreal, which in 2011 have received 14, 37 and 15 percent of all immigrants, respectively ( For the Vancouver area this means that during the 2006-2016 period an average 11,357 immigrant families have settled there, which means that they have demanded 947 housing units per month or about 237 per week. The analogous figures are 625 for Toronto and 257 for Montreal. By 2020 these numbers will rise by 50 percent as a result of the announced higher level of immigrants.

The implication of the foregoing analysis is that to prevent the development of an ever increasing housing crisis, municipal governments will have to relax existing regulations to increase the supply of housing. Increased federal subsidies would help, but to be effective they would have to so high as to add intolerable amounts to the fiscal deficit.

Therefore, the only federal policy with any chance of dealing successfully with the housing crisis is to reduce immigration levels to perhaps 50,000 or 100,000 a year for a limited time. Once the private supply of housing has eliminated the backlog and prices have stabilized, immigrant numbers can be raised again to levels reflecting the economy’s absorptive capacity and their contribution to the well-being of Canadians.

Thriving Nationalist/Anti-Immigrant Parties in Europe Why not in Canada?

The German federal elections on September 24, 2017 produced an electoral earthquake. The country’s ruling coalition headed for 12 years by Germany’s Chancellor Angela Merkel lost its majority, mainly because of the success of the nationalist/anti-immigrant party Alternative for Germany (AfD), which won 97 seats, up from zero in the preceding elections. On November 16th, Merkel made unprecedented announcement that she had been unable to form a new governing coalition and refused to head a minority government, preferring a new election instead.

Nationalist/anti-government parties in other important countries of Europe also have gained much support from voters. The percentage of the total vote and the number of seats gained in these countries after the most recent elections were:

Switzerland 29.4 and 65/200; Denmark 21.1 and 37/179; Austria 26 and 51/183; Finland 17.7 and 38/200; Norway 15.2 and 27/169; Netherlands 13.1 and 20/150; Sweden 12.9 and 49/349; Germany 12.6 and 97/631.

In France the National Front in 2017 received 13.2 percent of the votes, more than the percent gained by the AfD, but because of the country’s electoral system gained only 8 out of 377 seats in parliament. In Poland the Law and Justice party received 37.6 percent and with a majority of 235 out of 460 seats has formed the government. Nationalist/anti-immigrant parties have also been successfully attracting votes in the Czech Republic, Hungary, Bulgaria, Latvia and other former communist countries of Eastern Europe.
Voters dissatisfied with their countries’ immigration policies also played important roles in the victory of the British referendum that led to Brexit and of President Donald Trump in the United States.
The platforms of the nationalist/anti-immigrant parties in Europe appealed to voters who had personal experiences and learned from media reports that immigrants were responsible for many growing social and economic ills in their lives: the number and scope of terror attacks and criminal acts; threats to cultural and religious institutions and practices; the cost of housing; the crowding of schools, hospitals and public spaces and the scarcity of jobs taken by immigrants.

The establishment politicians in the countries with strong nationalist/anti-immigrant parties obviously have not been able to counter these views by claiming that their supporters are  racist, xenophobic and fascists and that they do not understand the large benefits brought by immigrants: the elimination of labor shortages; reductions in the financial problems of social programs; increases in global solidarity with needy people in the rest of the world and the benefits of greater cultural and religious diversity.

Canadian politicians and intellectual elites have been ignoring the growth of nationalist/anti-immigrant parties in Europe. The current government has instead increased the planned annual number of immigrants from the recent 250 thousand to a high of 360 thousand by the year 2020.
It seems that this policy is out of touch with the views of the public. An Angus Reid poll in the middle of 2017 found that 57 percent of Canadians agreed with the statement that “Canada should accept fewer immigrants and refugees.” The latest annual poll by the federal Department of Immigration reported in November 2017 that increasing numbers of Canadians hold negative views about the current level of immigration.

Why the persistence of the difference between government and public views on immigration policies? The answer is that Canada uses the first-by-the-post system to allocate seats in parliament. In Europe most countries use proportional representation to assign seats, which enabled the creation and success of the nationalist/anti-immigrant parties.

Canada’s establishment parties will not abandon the present electoral system. Their assured protection from anti-immigrant parties brings them too many opportunities to use immigration policies to buy the votes of employers of cheap immigrant labor, the firms and professionals wanting larger domestic markets for their output, the real estate and construction industries, the communities of recent immigrants and the immigration industry of lawyers and consultants – even as they know that the public disapproves of the mass immigration they create.

The majority of Canadians who want to see fewer immigrants will have to wait a long time before they get their way.

This essay has been published in the Vancouver Sun on December 8, 2017:

Monday, October 23, 2017


This article has been published in the Fraser Institute Blog found at SUPPLY MANAGEMENT AND THE INTEREST OF CONSUMERS AND FARMERS

A leading politician recently explained to me why the last Conservative government in Ottawa did not abolish supply management: “It was not in the party’s interest”, implying that in fact it would have been in the public interest to have done so.
Why all governments since the inception of the system in the 1970s allowed the party over the public interest to dominate is easy to explain. The beneficiaries of the system spend large amounts of money lobbying politicians to retain it and punish those who do not. On the other hand, for the vast majority of voters the existence of supply management and the costs it brings are of relatively little importance and politicians would expect few electoral gains from ending the system. In fact, the results of a recent Angus Reid poll revealed that 58 percent of Canadians had “no idea” and 38% “knew little” on how the system works and therefore how much it costs them.[1]

However, the status quo is now threatened by President Donald Trump’s demand for an end to Canada’s supply management system during the renegotiation of the NAFTA treaty.[2] As a result, Prime Minister Justin Trudeau’s Liberal government faces a problem. If it insists on maintaining the system, US negotiators will demand reciprocal concessions that decrease Canadian exports, the exchange rate, employment and economic growth. 

If, on the other hand, the Liberal government agrees to abolish supply management, consumer prices will fall and the present level of US restrictions on Canadian exports will be maintained or even lowered and bring other benefits to the middle class the Liberals have promised to help.

The loss of the current electoral and financial support from the beneficiaries of the system can be made up by a government program explaining to voters why this policy is in their interest. The focus of such a campaign should be the simple explanation of how this system operates and how it affects their cost of living.

The explanation[3] should start by pointing to a very important and simple fact: Anyone in Canada who wants to produce or import dairy products, poultry and eggs and sell them must buy a quota from other farmers or face persecution resulting in fines or jail. With the ownership of the quota comes the right to sell a specified amount these products at prices fixed by a government-sanctioned association of producers.

By controlling the quantity of quotas in the market, this association determines the total amount produced and thus the prices at which demand equals supply in Canada. These prices are supposed to allow farmers to pay their capital and running costs and earn a normal profit. In fact, however, they are higher by amounts farmers need to pay the interest on the loan they had to take out to purchase the quota. Recently, according to a non-profit organization that represents Alberta’s dairy producers, the cost of a quota in Alberta came to $36,000 per cow or $3.9 million for an average-sized dairy herd of 108 cows.[4]  

The very existence of the quota price, which is found on the internet,[5] is incontrovertible evidence that consumers in Canada pay more for dairy products, poultry and eggs than it costs farmers to produce them and that without supply management consumer prices for these products would be lower. How much lower would these prices be? According to one recent peer-reviewed publication[6] the average family in Canada would save $444 annually. This burden is greater for the poor and families with children smaller for the rich and childless.

One reason why politicians may have been reluctant to end supply management in the past is that it will conflict with Canadians’ sense of fairness and will bring financial hardships or even bankruptcy to farmers whose income is curtailed but whose debt obligations remain, all caused by governments and for reasons beyond their control.

The government can deal with this problem by creating a financial adjustment program, the basic features of which are found in Australia’s recent experience.[7] That country in 2000 had ended supply management and assisted farmers through quarterly payments over eight years. Farmers leaving the industry were paid a lump sum.

An important feature of the program was that its cost was covered not by funds drawn from general government revenue but by the imposition of a surcharge of 11 cents per litre on the buyers of milk scheduled to last eight years. These costs in effect are an investment lasting eight years, which will bring a return of lower milk prices into the indefinite future.

It was not easy to design a compensating package that was fair to all Australian farmers and it would not be easy to do so in Canada, especially since the termination of supply management will impact farmers differently, depending on the time and price at which they had obtained their quotas. Some had received them free of charge when the system was created in the 1970s while the rest have enjoyed gains in the ever increasing value of their quotas depending on the time of their purchase. Most seriously hurt would be farmers who had bought their quotas recently.

However, these issues of compensation can and will be overcome simply because ending supply management will bring large and lasting benefits to Canadian consumers and in addition, will remove one of the greatest irritants in Canada’s relations with its global trading partners, increase economic and personal freedoms and allow free market forces to improve through time the quality, variety and costs of all agricultural products.


Alberta Milk (2017), “How much does quota cost for a 108 cow dairy?”, found at

Canadian Dairy Information Center (2017), Monthly Milk Quota Exchange, found at

Cardwell, Ryan, Chad Lawley and Di Xiang. 2015. “Milked and Feathered: The Regressive Welfare Effects of Canada’s Supply Management Regime.” Canadian Public Policy 41(1): 1-14.

Edwards, Geoff (2003), “The story of deregulation in the dairy industry”,  The Australian Journal of Agricultural and Resource Economics, 47:1, pp. 75–98 *
Globerman, Steven and Christopher Sands (2017), The Fate of NAFTA: Possible Scenarios and their Implications for Canada, The Fraser Institute, found at
Grubel, Herbert and Richard Schwindt (1977), The Real Cost of the BC Milk Board, The Fraser Institute, found at

Reid, Angus (2017), “Supply Management: Most Canadians say scrapping system should be on the table during NAFTA talks”, found at

[1] See Reid (2017)
[2] For a discussion of the demand and broader issues surrounding it see Globerman and Sand (2017).
[3] For an early study of supply management and its cost see Grubel and Schwindt (1977)
[4] See Alberta Milk (2017)
[5] See Canadian Dairy Information Center (2017)
[6] See Cardwell et al (2017)
[7] See Edwards (2003)


This article has been published in the Vancouver Sun on October 2nd, 2017. It is found at

Joffre Lakes Provincial Park is one of the most scenic recreation areas in Canada, if not the world. A 500 meter walk from the road reaches a small turquoise lake, an exhilarating five kilometer hike after two hours and an altitude gain of 400 meters reaches a second, a further 30 minutes a third lake. The path goes through an ancient forest, across avalanche chutes covered with slide alders and is bathed in the sound of rushing waters from a nearby creek and waterfalls.

The views from the lakes are spectacular. Evergreens line the shores and the waters reflect the sight of the large glacier descending from the 2,700 meters high Joffre Mountain. The highest lake is so close to this glacier that one can see serrated columns of ice and occasionally thundering falls of ice and rocks.

On this year’s Labour Day Sunday my wife’s and I drove to the park, where we encountered a traffic jam near the entrance and a long search for the last spot in one of three parking lots. The wait for the use of the single toilet at the start of the trail was 20 minutes. An RCMP officer at the scene told me that these conditions prevailed also during weekdays in the summer.

On the hiking path, we stopped every few minutes to let lines of younger and more vigorous hikers pass us. As we found out later, these hikers had parked on the side of the road, obviously willing to pay the tickets that a large sign had announced. It simply made more sense for them to pay this fine than to drive 3-hours back to Vancouver without stopping at the Park. Most unpleasant were the large crowds at the prominent viewpoints at the lakes, which offered standing room only and were bathed in loud chatter spoiling the normal silence of the environment.

Such unpleasant overcrowding of the Joffre Lakes Park is typical of all recreational facilities in the Lower Mainland. It also afflicts the region’s roads, bridges, public transit, hospitals, schools, universities and water supply and most importantly, Vancouver’s housing market.
What causes these problems? The simple answer is that for these facilities demand exceeds supply, but for the design of remedial policies, the fundamental but also more difficult question is why is there this excess demand?

Currently, the most popular answer is a shortage of investment in housing and infrastructure. Governments for some time have adopted policies to remedy this situation. The very existence and growth of the excess demand is clear evidence that these policies are inadequate and are likely to remain so. The relief from recently announced increases in publicly subsidized housing will quickly be overwhelmed by the torrent of additional demand for it.

Popular are also policies designed to reduce demand. They are focused on the housing market and involve taxes on foreign buyers, raising the cost of mortgages and reducing regulation. These policies at best have had only transitory effects on demand for housing. More investment in infrastructure has been promised by all parties at every election but obviously has failed to eliminate the problems.

However, there is one simple way to reduce demand. Lower immigration from the present rate, which sees about 250 new immigrant families settle EVERY WEEK of the year in Greater Vancouver. This rate of increase has brought the total population of British Columbia from 2.2 million in 1972 to 4.8 million in 2017. The projection that it will reach 6.0 million in 2037 strongly suggests future worsening of excess demand.

Parliament could easily reduce the number of immigrants temporarily from the present national 300,000 per year to 50,000. While in place for perhaps five years, the construction of housing and investment in infrastructure can catch up with demand. Thereafter, the number can be raised again but only to a level equal to the economy’s absorptive capacity marked by the sustainably matched demand and supply in housing and of infrastructure services.

Canadians really face no costs resulting from such a temporary reduction in the number of immigrants. Politicians proposing this policy run the risk of electoral losses from some powerful interest groups, but these could easily be exceeded by the gain in votes from suffering Canadians who benefit from it and let the politicians know about their preferences.

What Motivates Kim Jong-un and Why it Matters

In April I traveled to Seoul to deliver a paper at a conference of economists and public policy experts. On this occasion I learned much about life and politics in Korea by touring the Korean War Museum, an art museum, a university, a hospital, historic palaces, commercial centers and the Demilitarized Zone. Most informative were discussions with local leaders, academics, doctors and a general who recently had commanded the US forces stationed in Korea.

This visit to Korea has caused me to take more than the usual interest in the current political problems surrounding North Korea’s development of a nuclear arsenal and missile delivery system. I therefore eagerly attended a public lecture on the topic delivered by Paul Evans, a specialist on Asian Pacific international relations at the University of British Columbia who has served on a number of committees that regularly advise governments on the politics of the region.

To my surprise Evans argued that Kim Jong-un’s development of a nuclear arsenal is the result of his belief that the United States was planning to invade his country and destroy his regime. This long-standing belief explains North Korea’s maintenance of one million soldiers on active duties that are backed by several million reservists and paramilitary units. These troops are equipped with thousands of tanks and artillery pieces capable of using chemical and biological agents soon missiles equipped with nuclear warheads.

Evans’ interpretation of the reasons for North Korea’s nuclear policy leads him to the conclusion that the country’s fear of invasion and its aggressive rhetoric can be ended by the withdrawal of US troops from South Korea and regional military bases.

However, many experts disagree with this recommendation on the grounds that Kim Jong-un’s policies are not motivated by national security concerns but the ideologically driven desire to create one communist Korea on the Peninsula. This goal has motivated North Korea’s policies since 1945 when the cold-war foes United States and Russia agreed on the creation of the two countries north and south of the 38th parallel.

This view of North Korea’s true motives is backed by strong evidence. The Korean War was started when in 1950 the North Korean army invaded the South Korea in a surprise attack and without any provocation or threat of an attack on its territory.  That war ended in 1953 with North Korea agreeing only to a cease fire not a peace treaty, signaling that it did not accept the permanent division between the two countries. The country’s recently created nuclear capacity is not needed to defend its territory from invasion but to support its grand scheme for a unified Korea.
This grand scheme includes North Korea’s use of its nuclear capability to blackmail the United States into withdrawing its troops from South Korea or face a nuclear missile attack on its territory. The experts believe that if this threat causes the United States to withdraw its troops and prevent it coming to the aid of the South Korean army in case of a military conflict, North Korea will invade South Korea, defeat its army and establish a communist government.

If this analysis is correct, the challenge is not to persuade the United States to withdraw from the region but to persuade Kim Jong-un that the United States will never be blackmailed into withdrawing its troops and abandoning its support for South Korea. If he accepts this proposition, he will end his provocative rhetoric about attacks on US territories and the United States in return will accept the fact the North Korea is a nuclear power, as it has in the case of other countries like China, India, Pakistan and Israel.

President Donald Trump’s policies are designed to signal America’s resolve to resist the nuclear blackmail by North Korea. It is an open question whether this will be enough to persuade Kim Jong-un to end his provocations with or without offers of financial assistance and the ending of existing sanctions. Past efforts made in this spirit have failed and the world can only hope that they will be successful in the future.

Wednesday, March 29, 2017

Justin Trudeau needs to deregulate to innovate, but we didn’t see that in the federal budget

Canada’s 2017 federal budget failed to offer any plans for deregulation. This is ironic because regulations are among the most important obstacles to innovation, the holy grail of the government’s plan for future growth. Planned subsidies will not prevent the death of nascent innovations in garages or on desktop computers too small or distant from Ottawa to get the attention of the new, large federal bureaucracy.
The irony is worsened by the policies of President Donald Trump and the Republican Congress, which have begun to deliver on their promise to reform the regulatory system. As they do so, they will encourage Canadian innovators to move south to escape the costly time and red-tape paperwork they face here.
The American reform plans are the response to the staggering costs of existing regulations. Large banks claim that one worker is required to make sure that four others comply with regulations. Government regulations account for 24.3 per cent of the final price of a new single-family home. The burden of compliance is symbolized by the fact that in 2014 the Federal Register for Regulations mentions 1.1 million times the words “shall,” “must,” “may not,” “required” and “prohibited.”
The total cost of U.S. regulations has been estimated to have been US$1.88 trillion in 2015, not including the effect regulations have on future rates of innovation. This figure is equal to more than half of the federal government’s spending that year and while it is on the high end of available estimates, there is no doubt that the costs of regulation are enormous.
To deal with the cost of regulation and the public complaints it has created, Trump has issued an executive order that requires all regulatory agencies to eliminate two existing regulations for every new one they adopt. To prevent the repeal of only regulations that impose little cost, the savings they bring must be at least as great as the costs resulting from the new regulation. Trump also ordered a temporary stop to the hiring of all new government employees including those in regulatory agencies. In his first budget he proposed severe spending cuts for regulatory agencies, such as the 31 per cent facing the Environmental Protection Agency, and appointed known critics as heads of regulatory agencies, such as Scott Pruitt for the EPA.
Congress has also has gotten into the act. On January 6, 2017, it passed the awkwardly named Regulations from the Executive in Need of Scrutiny Act (REINS Act), which will return to politicians the right to approve or reject any new regulations that have an economic impact on the economy greater than $100 million a year. Even before the election, in 2016 the Republican majority in the House of Representatives introduced the Agency Accountability Act, which will require all regulatory agencies to transmit to the treasury fines and fees they have collected from the public, and which reduces their financial resources and incentives to impose fees and fines.
At the core of these reforms is the desire to return the regulatory process to elected politicians and away from unelected bureaucrats in regulatory agencies who, according to Senator Mike Lee from Utah, have created the conditions where: “Today, the vast majority of federal “laws” —upwards of 95 per cent — are not passed by the House and Senate and signed by the president as the Constitution directs; they are imposed unilaterally by unelected Executive Branch bureaucrats.”
Many Canadians will be appalled by the proposed regulatory reforms in the United States, fearing that polluters will again bring skies darkened by smoke and fish killed in rivers. These concerns are not warranted. The proposed U.S. reforms will not repeal such clearly beneficial regulations favoured by the public.
They will instead focus on regulations that bring ephemeral benefits, like those coming from regulations that are highly uncertain, like those aimed at the prevention of global warming and financial instability. The assessment of the net benefits from such regulations will again be made by politicians who reflect the values of the public and not by unelected bureaucrats who have chosen to work in regulatory agencies to advance leftist ideological goals.
Even if Canadians do not like American voters’ instructions to their politicians on regulatory reform, the failure to consider its implications will affect seriously all of the economic and social programs advocated in the 2017 budget. Regulatory reform should be on Canada’s agenda for public discussion and serious political consideration.
Published in the Financial Post on