Category Archives: Government transformation

Health Care Has Become a Signal Issue of Our Time

Published in the Telegraph-Journal 19th October 2012

Canada’s publicly-funded health care system is poised to undergo its greatest reform since the signing of the Canada Health Act in 1984. The reasons for this pending transformation have much to do with health care’s financial unsustainability. A number of factors will drive changes in the total health care spending-to-GDP ratio over time. In New Brunswick, these factors include changes in the age demographics of the population because per capita health care spending increases rapidly beyond a mid-40s age threshold.

An additional challenge involves GDP growth that has effectively stalled while health care costs continue to rise by significantly greater than inflation. While New Brunswick’s fiscal deficit has been brought largely under control, government’s debt remains high. Historically low interest rates have helped to keep the government’s debt service costs low as well, but this is a temporary phenomenon. To compound the problem, global population aging is set to place upward pressure on long-term interest rates and therefore intensify debt service costs over the next fifty years.

Health care technology is one of the cornerstones of the cost challenge. Technology has increased efficiencies and dramatically improved the quality of medical services. Changes in medical technology and practices have had a material impact on health care spending. The introduction of more sophisticated tools has been shown to increase demand for health care services and raise costs. Pharmaceutical technologies have increased costs even more dramatically. In Canada, technology changes accounted for as much as 25 per cent of the growth in real per capita health care spending from 1996 to 2009.

Even with substantial health care reforms, a combination of initiatives will be necessary to cover rising health care costs. Individuals and employers may be faced with increased spending for government services in the form of fees or surcharges. However, the public may still see a reduction in government services. Increased taxes to finance the public share of health care spending may become necessary. Budgetary restrictions may lead to some form of co-payment spending by individuals on health care services that currently are provincially insured.

This could lead to the development of a privately funded health care system to provide better-quality care for those willing and able to pay for it. The UK and many European countries have this “two-tier” system, and New Brunswick already has elements of this system in place in the form of private clinics. The partial privatization of health care would have little impact on the rate of growth of total spending although it does alter the public-private split and has distributional implications. There is a greater risk that a weakening of the health care system will lead to a major degradation of publicly-insured health care standards such as longer queues, lower quality service provision and delisted products and services.

At the same time, technology will be one of the cornerstones of the transformation needed to realign health care with our fiscal reality. Over the course of more than 15 years, numerous attempts have been made to wield technology to introduce greater productivity into the health care system, but so far there has been little progress. Significant potential clinical and financial benefits would be achieved with the implementation and networking of health information technology (HIT), primarily through the widespread adoption of electronic medical records (EMR). By improving health care efficiency and safety, HIT-enabled prevention and management of chronic disease could significantly increase benefits.

However, in New Brunswick, these benefits are unlikely to be realized without related changes to the health care system. These changes amount to a full-scale transformation of health care, our fundamental assumptions about how it is provided and how we plan to pay for it.

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Filed under Economics, Finance, Fiscal Policy, Government transformation, Health Care, Innovation, New Brunswick

Public Spending Will Become Squeezed

By Peter Lindfield, published in the Telegraph-Journal 28th August 2012

As the calendar moves closer to the next election in New Brunswick, it is clear that a central issue will be the government’s performance on the economy. There has been much hand-wringing over what the role of government should be in determining sustainable growth and prosperity. But there is widespread agreement that provincial government spending, as a share of the overall economy, needs to be reduced.

On the face of it, the challenge is simple enough. Recent government expenditure reductions and the elimination of various programs have contributed to a reduced fiscal deficit. But structural reasons will make it more difficult to easily reduce the size of government. Over time, preserving current government obligations will require substantial increases in the share of the provincial economy devoted to the public sector.

Demographic changes will greatly expand provincial financial outlays unless politicians make decisions to reduce the steadily escalating level of health care provision. In New Brunswick, almost 40 per cent of the provincial budget is dedicated to health care. Barring other adjustments, larger percentages of that budget will go to supporting those over 65 and the ratio of this age group to those of working age is rapidly rising. The share of the population over the next generation who will need extensive care is also increasing.

The rising fiscal debt and the eventual and inevitable return to higher interest rates will raise the share of provincial spending devoted to debt interest payments, which was pegged at $600 million for 2011. Until recently, government debt was a manageable portion of its expenditures but today, even if the fiscal deficit is reduced to zero, the cost of managing the debt will continue to rise. This will place a severe constraint on government expenditures.

Methods that have been used to inhibit the deficit, such as government pension liabilities and the deferred maintenance of provincial infrastructure, such as roads, bridges and water treatment systems eventually will be unsustainable. Pressure on provincial infrastructure budgets will increase in the years ahead.

The complexity and the cost of government services, such as scientific research and public safety have risen far more quickly than inflation. Over the last twenty years, the cost of post secondary education and health care has risen exponentially compared with the price of automobiles, clothing and electronics. The relatively lower prices of consumer goods reflect trends in technology, product innovation and the competitive forces of globalization. But if the New Brunswick government is to continue providing the same level of public services, government spending as a share of the economy is likely to increase rather than decline and inevitably will raise the cost of government’s involvement in the economy.

Technology and process improvement could substantially reduce government costs in some areas, but this obscures the fact that the largest components of the provincial budget involve cash or in-kind transfers. Long experience with government cost-reduction in Ottawa suggests that these components are much less responsive to productivity-enhancing methods than those that involve the production of goods or services. There is also scope for the elimination of outmoded or duplicate programs but efforts to identify outright government waste invariably will result in less than impressive savings.

Pressures on government spending are likely to rise rather than decline, despite good intentions and hard work. The profound challenges to conventional reductions in the size of government suggest that the overarching areas of public discussion needs to be about how much government transformation is possible without jeopardizing the economy, choosing priorities based on affordability and about what decisions we need to make to pay for those priorities.

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Filed under Government transformation, New Brunswick

On the Path to a More Cohesive Province

By Peter Lindfield, published in the Telegraph-Journal 27th July 2012

As Canada’s Council of the Federation meetings convene in Halifax in the waning days of July, the economic news from the rest of the world is grim. In the U.S., consistently weak industry performance has defied analysts’ more rosy forecasts. An electoral crisis in Greece, a banking crisis in Spain and Portugal, and a bitterly fought election in France have all taken place within the previous months. Canada has not been spared. The unemployment that remains stubbornly high in some provinces is emblematic of a growing regional disparity. And the commentary about the world’s economic problems, with dire predictions of further unemployment, defaults, and recession would appear to set the stage for pessimism at the meetings.

At the Council meetings, there are the usual and expected complaints about federal government’s lack of commitment to provincial concerns. But we are also hearing measured optimism and a continued focus on Canadian competitiveness. And we are hearing this from Canada’s business sector.

This expression of confidence comes from a business community that customarily is disinclined to support government while being prone to complain about excessive government regulation and meddling. This perspective is also in contradistinction with the views of much of the business media which is more content to report the bad news. So it appears that, despite the uncertainties that the 2007-2009 financial crisis and subsequent recession have exposed in contemporary capitalism, a substantial number of business leaders neither want the current system to break apart nor think that its fragmentation is inevitable.

Canadian business leaders do want transformation. They believe in radical political and economic changes that support competitiveness and promote greater centralization in governance structures. They believe that transformative change will encourage the recovery and the capacity to generate growth and prosperity. They also believe that this capacity is not distributed equally across Canada.

In New Brunswick, who really wants transformational political and economic change? Judging by the array of opposition to new thinking in health care, pension reform, education, energy, municipal governance, natural resource management and fiscal stabilization, the answer is very few want any change at all. Nova Scotia businessman John Risley expressed it succinctly when he said that “Atlantic Canadians don’t like change and want the world to leave them alone”. Mainstream, status quo thinking has made it more difficult for political parties to support the needed changes to institutions, regulations and laws to keep up in an increasingly fast-moving world.

The 2007-2009 financial crisis has made the world even faster moving. But at the same time, the recent impact of the crisis has been to raise the need for and the intensity of proposals for reform, even in New Brunswick. There is an enormous push building for reconciling pension practices. The goal of a more rational approach to municipal governance, which has been stalled for decades by fruitless negotiation, now stands a chance of succeeding. Major changes in health care, education and social service delivery are now at least on a discussion agenda. Looming in the background is the specter of government’s growing debt. To say that the debt constrains our choices is an ambitious understatement. Very few voluntary changes will be possible if government’s deficits and debt are not brought to heel.

Crises arise because critical questions are inadequately addressed. Viewed in this way, the current fiscal crisis in New Brunswick should be welcomed as the catalyst it is. It will force leaders and the public to closely examine the transformative measures and reforms that have been resisted, held back or postponed for years. Whatever one may think about the current challenges, or the discussions they have fostered, the consequences of future efforts should be a stronger, more cohesive New Brunswick, not a lesser, weaker one.

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Filed under Government transformation, New Brunswick, Uncategorized

Will Social Impact Bonds Revolutionize Public Services?

By Peter Lindfield, published in the Telegraph-Journal 13th July 2012

With the persistent issues of rising health care costs, homelessness and poverty, it is becoming increasingly apparent that the old paradigms of government aid and individual benevolence are inadequate to the future challenges that face us.

With budget pressures mounting at all levels of government, it will be critical to adapt to changing needs and expectations. Social impact bonds are being considered as a way to provide services in areas such as justice and corrections, mental health, homelessness and support for people with developmental disabilities. Bond issues have been directed to reducing crime and homelessness. These two challenges have interventions where there exists knowledge about what works and where costs can be reduced. They also have outcomes where measurements are possible in the medium term.

How social impact bonds work is deceptively simple. Private investors fund new services and are repaid their capital and an agreed-upon profit but only if social outcomes that are also agreed upon in advance are met. Social impact bonds are focused on outcomes rather than outputs, so governments – and the public – pay only if an initiative is successful. This pressure to achieve outcomes creates an incentive to innovate. Social impact bonds may fundamentally alter how some social service programs are structured, improving outcomes and reducing costs for government departments and social sector organizations.

The promises of improved outcomes and future cost savings are attractive propositions for governments. In the last federal government budget, Finance Minister Jim Flaherty said that the bond concept holds promise, stating that government was considering them. In his recent report, Don Drummond recommended that the Ontario government initiate pilot bond projects in a number of areas. Alberta’s Premier Alison Redford has committed to the introduction of social impact bonds in that province. In the U.S., Massachusetts is working to sign contracts to back $50 million in social impact bonds for two projects. The first is targeted to people exiting the juvenile justice system to make the transition to adult life, while the second will support housing for the chronically homeless.

This financial innovation is not without its detractors. The National Union of Public and General Employees (NUPGE) claims that the social impact bond funding scheme for public services introduces risks in the form of “higher costs, reduced accountability and privatization”.

“We will oppose these deals at every step,” said James Clancy, NUPGE national president. “Social impact bonds are just the latest quick fix funding scheme to catch the attention of governments. We urge governments to find the financial resources through a fairer tax system to invest in social programs and public services, instead of wasting time on more expensive and riskier ideas.”

The McKinsey Group points out that establishing rigorous outcomes-oriented management carries risk as well as reward. In a recent report on the potential of social impact bonds, McKinsey stated that it is easier to secure resources if a bond’s assessment provided evidence of significant impact, “but poor or misinterpreted results could lead to lower levels of financial support. Ongoing performance management, in which the nonprofit learns from what it is doing wrong and becomes more effective in achieving its mission, is crucial to long-term success”.

Social impact bonds are the latest example of two important movements in the delivery of social services. One is measuring outcomes rather than outputs while the other is financial reward for the achievement of that outcome. Both movements should be welcomed by beleaguered taxpayers.

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Filed under Finance, Government transformation, Innovation

Does Health Care Innovation Matter to Canadians?

By Peter Lindfield, published in the Telegraph-Journal 29th June 2012

Canadians are facing a time of increasing fiscal constraint in health care. The escalating costs of technology hardware and pharmaceutical products, demographic shifts and rising expectations for medical outcomes will conspire to keep a focus on long-term health care solutions. Two interlinked terms have become ubiquitous in discussions about health care’s future: transformation and innovation. There is increasing agreement that the current health care system is not sustainable in the long term.

Innovation, then, should be at the center of the lexicon of Canadians’ discussions about how health care will change. But University of Toronto academics Neil Seeman and Carlos Rizo draw a different conclusion. In a 2009 research study, “Communicating the Health Care Innovation Agenda to Canadians”, Seeman and Rizo examined how effectively Canadian governments are communicating the rationale for an innovation agenda in health care and how intensely Canadians express interest in health system innovation. Using web tools such as Google Insight and Trends, the researchers investigated health information trends from 2004 to 2008 tracking press releases as “a proxy for how governments signal priorities to the public and to the media.”

The results of their inquiry are surprising. Seeman and Rizo’s analysis highlights that governments are not effectively communicating to Canadians about why innovation matters. Although politicians and health care experts place significant emphasis on innovation, the concept is rarely defined, in part because health care innovation can refer a bewilderingly wide array of terms. They include such esoterica as process transformation, electronic health records, breakthrough strategies or new management models. Each is intended to ensure improved health and greater return on investment and in fact achievements are being made in each area.  But Seeman and Rizo ask, “When our politicians talk about “investing” in electronic health records and other e-Health innovations, why do the public’s eyes glaze over?”

When reviewing the public’s interest in health care innovation, Seeman and Rizo found lessons that governments in Canada should heed when communicating the innovation agenda. The public does not share governments’ enthusiasm for health care innovation as the term has been developed in Canada.

Seeman and Rizo’s findings point to the fact that the terms innovation and e-Health, as currently used by governments, “do not signal the types of health topics in which Canadians have a keen interest.” They state that, “Health innovation communications in Canada needs to be recast to focus on solutions that enable citizens to experience more personalized care … that speaks directly to patients’ key interests.”

Their analysis also underscores the fact that Canadians are most interested in seeking out information that provides them with a better understanding of their illness and their personal relationship with their health care providers. More Canadians will be supportive of an innovation agenda if governments and health care provider organizations can demonstrate that technology or other process innovations in health care serve the future of personalized medicine.

Innovation is at the core of the transformation goals and objectives that underpin what governments and politicians think are necessary to meet the challenges associated with health care, education, social programs and economic development. If governments have achieved only limited buy-in to its innovation agenda from the Canadian public, the implications for the future of public policy are profound. Ultimately, governments need to make improvements in more directly translating the practical return on investment on innovation if they want an innovation agenda to matter to Canadians.

Governments need to better demonstrate the future financial benefit from such investments. This means throwing a spotlight on how investments in innovation will translate into a higher quality of care for individuals, their families and their communities. This will generate greater support for a model of health care delivery where Canadians are accountable for increasingly better outcomes, not only for themselves, but for the health system as a whole.

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Filed under Government transformation, Health Care, Innovation

Employment Insurance Reforms Are Inevitable But the Methods Are Not

By Peter Lindfield, published in the Telegraph-Journal 15th June 2012

The federal government recently announced sweeping changes to Employment Insurance (EI) that will have dislocating effects for many workers across Canada. In the Maritime Provinces, workers in industries that have seasonal characteristics will be particularly hard hit as the government’s new rules attempt to reduce their reliance on EI during what can be months of unemployment. The new rules place more stringent conditions on workers with three or more EI claims in the past five years, or who have collected EI for more than 60 weeks in the past five years.

Seasonal workers in industries such as fisheries, forestry or tourism would be considered frequent claimants and would be required to accept work for which they are qualified after collecting EI for seven weeks. If required, training would be provided to allow workers to learn new skills. Long-tenured workers and occasional claimants who collect EI less frequently would be given more latitude to find employment.

These new EI rules have been met with derision by opposition political parties, but some business groups welcome the changes. “These new rules should help push people off of a pogey lifestyle and into steadier jobs,” said Gregory Thomas, national director at the Canadian Taxpayers Federation.

Some critics of the government’s changes to EI have complained that a significant number of seasonal workers will be required to travel substantial distances to find year-around work. Other criticisms stem from observations that many workers will be forced to accept employment far removed from their chosen vocations.

Federal government officials deny both charges. “These changes are not about forcing people to accept work outside their own area, or taking jobs for which they are not suited,” said Human Resources Minister Diane Finley at news conference.

There is no denying that Canada’s social programs require an overhaul. The responsibility of government is to find that balance between fiscal stability and social conscience. With the global economy and the harbingers of fiscal and demographic constraints becoming more apparent, there is no guarantee that this twin trajectory can be maintained. At the same time, the gap between haves and have-nots is increasing. It is not a recipe for political, economic or social success: increasingly, this gap is a source of real social discontent.

There may be a better way to address the intersection of social and economic issues. The graduated way in which government introduced recent reforms to the Old Age Security (OAS) is a stellar example. Rather than instituting massive changes in one sweeping move, government has chosen to grandfather today’s recipients into the current plan for an extended period. A similar approach to EI reform could be made to pay large dividends. An orderly and measured transition from flagging industries and moribund locations to more productive ones could be made over the period of years rather than months. A precedent embalms a principle, observed Benjamin Disraeli.

More troubling is the overtly moral tone that has emerged when discussing the recipients of Canada’s social programs. One of the hallmarks of this moralism is the exasperation with what some consider the piousness of the soft-hearted left who are also considered enemies of the work ethic. This reactionary perspective is neither founded in fact nor helpful.

In fact, the consequence of this animus of work ethic moralism represents a danger to the larger project of comprehensive human decency. The current capitalist paradigm vastly underrates the value of economic equality and social stability. For most of the more than two hundred years since the Industrial Revolution, this has been inconsequential, as relentless technological advancement has tended to compensate for short-sighted policies. But economic globalization has re-written the rules in a profound way.

As with the changes to the Old Age Security program, Canadians should view reform of Employment Insurance as part of the blueprint for the Canadian identity. We will achieve greater success if we consider political, social and economic reforms not as a political mandate checklist, but a long-term journey.

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Filed under Government transformation, Income Inequality, Social contract, Social policy

Euro Crises put Contemporary Capitalism at a Crossroads

By Peter Lindfield, published in the Telegraph-Journal 12th June 2012

Contemporary European capitalism has had a relatively short run. It combines generous health and social benefits with shorter working hours than in North America and an emphasis on long vacations and early retirement. With high levels of productivity and income distributions that avoid excessive inequality, the European model of capitalism would appear to be the ideal balance of competitiveness and social stability.

In a post-financial crisis world, the possibility of fiscal meltdown in Greece, Spain, Portugal and Italy has become frighteningly real. We have come to question the sustainability of the European model. But the failure of these economies in conjunction with an extended global recession has cast a long shadow on the future of capitalism itself.

Successive versions of capitalism have been extraordinarily successful for more than two hundred years since the beginning of the Industrial Revolution. The dismal poverty that is still prominent in some parts of the world has been all but banished in much of the West. This is in stark contrast to the catastrophic experience of Marxist and socialist states, especially in the twentieth century. Today there is no agreement on what a viable replacement for the contemporary Anglo-American paradigm would look like.

A more state-centric variant of capitalism exists in China, where industrialization and massive investments in technology have transformed that country in less than thirty years. The Chinese capitalist model features ferocious competition among export firms, and government intervention is widespread and pervasive. Its social safety net is substantially weaker than the typical Anglo-American model.

But rather than viewing China’s model as superior to the Anglo-American paradigm, it is important to remember that Chinese political, economic, and financial institutions are still evolving.

In fact, it is the long global successes of capitalism that have thrown a spotlight on the looming structural flaws of the current economic system.

First, we continue to be faced with a widespread financial crisis on a number of fronts. Ongoing, relentless technological innovation has conspicuously increased economic risks where purely market-based solutions appear to be unable to address the global transformation that is taking place.

Financial systems themselves have inadequate regulations, with too little focus on excessive accumulations of debt. A prominent example is health care, where many countries are struggling with the moral dilemma of how to maintain incentives to produce and consume efficiently without producing unacceptably large disparities in access to care. The current pricing of health care does not encourage a more equitable relationship between equality and efficiency.

Second, Western economies have consistently failed to effectively price public goods such as clean air and water. There is little political will to establish a sufficiently high global price for carbon to motivate firms and individuals to internalize the cost of their environmental activities. There is widespread consensus that economics and the environment are inextricably intertwined, but the failure of Western states to conclude global climate change agreements is indicative of this pricing challenge.

Third, capitalism increasingly is producing unacceptable levels of inequality. At sub-national levels, tax systems have failed to provide a greater measure of redistribution of income without creating unnecessary distortions. The growing gap is partly a byproduct of capitalism’s tendency to aggregate at the national level. But it is clear that in many nations, regional disparities are growing, despite some governments’ reliance on equalization systems. We have yet to find the tools to curtail this vicious circle without stunting national growth.

There is no doubt that conventionally measured economic growth with the central implication of higher consumption cannot be sustained as capitalism’s core objective. The challenges of climate change, health care and financial instability are becoming more prominent, while political institutions remain unable to address them. In a few decades, we may look back on this era as the turning point in the history of capitalism.

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Filed under Environment policy, Government transformation, Health Care, Uncategorized