[ paragraph continued ]
This trend heralds the transformation of society into a more complex, interconnected structure--a multi-organizational network--resulting in a new balance of power among the state, market and civil society. This will in itself force greater attention to the real importance of non-market activity and non-profit institutions, and will have significant impact on the way economic decisions are made (Dorais, 1995).

Some implications for policymakers are clear. First, they can expect an explosive growth of activity in the realm of civil society across North America, with opportunities for co-operation, competition and conflict in and among the state, market and civil society. Second, they can expect an increase in public and citizen diplomacy with the need to rethink and reorganize the interface between government and civil society at all levels. And finally, the integration of civil societies as well as markets will require governments to develop new criteria for successful international relations, embedding trade and commercial relations more explicitly within international commitments on environmental and social principles.

More concretely, however, these developments underline the importance of the cultural or social (institutional) capital within which productive activity is organized. As Ostrom (1992) points out, the development of social networks, and the rules and understandings on which they operate, are themselves critical to production. This social wealth has measurable economic value. The skills and knowledge which are widely acknowledged as key to future prosperity are exercised within the framework of this institutional capital or social infrastructure. It is this collective institutional capital--the capacity to build and effectively utilize individual skills and knowledge--that forms the basis of the wealth of nations or regions. And it is this social or cultural capital that determines whether the critical interface of our human activities with our natural home--the biosphere--will be effectively managed. In a widely-cited recent book, Putnam et al (1992) make a similar point on the basis of work on government, civil society and economic develoment in Italy. And again, in the world of evolutionary economics, with the heavy emphasis on institutional aspects of the innovation process suggested, for example, by Miller (1994), the significance of social capital in determining the effectiveness of investment in innovation and learning seems evident.

Ostrom (1992) observes that "if human operators do not follow regular patterns of behaviour that are expected and understood by others, especially system users, the potential flow of income from the physical [and human, natural and intellectual] capital will be severely impaired or even eliminated." The same holds true in relations among institutions at the level of a market as a whole. She also notes that "all forms of social capital involve spending resources--at least time and energy--in conducting transactions with others." This expenditure results in the build-up of a stock of accumulated investment that yields an income flow attributable, in principle, to that capital. That stock is not infinite: it needs constant replenishment, and substantial losses might be irreversible.

"The bureaucratized transfer of income among strangers has freed each of us from the enslavement of gift relations. Yet if the welfare state does serve the needs of freedom, it does not serve the needs of solidarity. We remain a society of strangers." (Ignatieff, 1984, p.18.)

In 1930, Keynes predicted that society would probably experience a type of nervous breakdown in adjusting to rapid technological change and globalization. "I think with dread of the readjustment of the habits and instincts of the ordinary man, bred into him for countless generations, which he may be asked to discard within a few decades." [Keynes, cited in Cordell (1985)] A high degree of social consensus will be needed to move forward with the necessary changes. Some people will have particular difficulty in making these changes. Yet by excluding those slower to adapt, or precluded by circumstances from doing so, mainstream society risks creating social tensions that could carry a high human and economic cost for all. Refusal to share the costs of adjustment broadly forces persistent recourse to all the work rules and rigidities that impede necessary adaptation. By refusing to address human security we force an obsolete clinging to job security throughout an economy that should be more flexible.

The foundation of a social contract provides the security from which risks of economic change and global competition can be more readily assumed, individually and collectively. The pooling of risks through social insurance, social assistance, or regional adjustment is a natural response of any community observing the problems individuals face in adapting to changing circumstances. This bargain entails accepting the need for social investment in human capital formation, in institution building, and in restoration and preservation of renewable resources as a legitimate charge on the public purse. In the new economy, public support for services such as education, health and social welfare--and, indeed, provisions for career development and job transition--are not forms of social policy representing non-productive consumption, but are investments in human capital which contribute directly and significantly to economic growth, development and productivity. They generate their own tangible economic returns in the future, and they should no more be treated as a burden on future generations than should corporate borrowing for new facilities and equipment.

The spectre of declining real incomes in a highly indebted North America will demand new strategies and mechanisms for maintaining social cohesion. The polarization of income distribution will also demand other mechanisms to bridge the enclaves created by sustained high unemployment and the "good jobs, bad jobs" phenomenon. In an era of economic quick fixes and short-term solutions to dogged social problems, the prolonged adjustment period which will be required to move us onto a new track of ecologically and socially sustainable development will also necessitate an openness and responsiveness to market signals which can only be achieved by pooling the risks and shocks of an uncertain world through new mechanisms of income redistribution. This, in turn, will force us to re-examine the nature of participation in the family, neighbourhood, school, workplace, province or region, nation and global community. Where productivity is more broadly defined in both the formal and informal economies, it will be seen that a social role and a productive place in the economy can be found through paid employment, self employment, education and training, voluntary work, community development or environmental conservation.

And finally, we will need to examine distributional issues arising around questions of access to the infrastructure and media of the information society. Economic or educational barriers to use of communications technologies, databases and gateways, or network services not only can exacerbate problems of income distribution, but also will raise even more fundamental issues of democratic participation and civic roles. The challenge is to develop a policy framework within which all of these issues can be seen as part of the whole rather than separate sectoral concerns, and through which we can examine the impact of a necessary repricing and restructuring of market activities in the direction of social cohesion and ecological sustainability.

For this, the social contract must reflect the features enunciated 50 years ago by Rhys Williams in the quotation which heads this paper. That social contract entails personal obligation and commitment, a responsibility to participate and contribute in an evolving economy which has forfeited much of its apparatus of job security. But it does so on the basis of a social commitment to a "minimum participation income" reflecting that contribution and the inherent claims of all Canadians to a share of the returns to the social network and ecological commons which make up Canada (Strong, 1994).

"In my opinion, there is one general approach . . . . Unemployment insurance and social assistance will have to be replaced by some form of guaranteed annual income or negative income tax. . . for people clearly unable to work, the level of support would obviously need to be higher." (Castonguay, 1993, pp.113.)

The idea endorsed in this paper is essentially the guaranteed income with a simple tax (GI/ST) developed by Wolfson (1986). Similar principles are found in the basic income guarantee with partial integration of the tax and transfer system (BI 2000) developed by Parker (1989), and reflected also in the concept of "participation income" discussed by Atkinson (1992). They can be found in the support-supplementation proposals of the Federal-Provincial Social Security Review of the early 1970s, and in the Universal Income Security Program (UISP) proposed by the Macdonald Commission. Dobell (1985) sketched the need for some such general approach to sharing the burden of adjustment costs and redistributing income as an essential prerequisite for an efficient, flexible and adaptive economy. That general argument is developed and extended in Wien (1991).

The fiscally neutral GI/ST proposed by Wolfson harmonizes the personal income tax and transfer systems while also simplifying and consolidating existing programs, improving incentives and providing more support to the working poor. It starts from the simple idea of combining a guaranteed income with a flat tax embodying a constant marginal tax rate. If a flat tax is tied to an initial income guarantee the result is a progressive structure where average rates of tax increase with income, even though marginal tax rates are constant.

A guaranteed annual income already exists in piecemeal form for the elderly and families with children through the Old Age Security (OAS), Guaranteed Income Supplement (GIS) and Child Tax Benefit. The recombination of these into one program serves as the basis of the guaranteed income portion of the GI/ST. The Child Tax Benefit, GIS, federal expenditures on Canada Assistance Plan (CAP), marital and equivalent to marriage exemptions, basic personal exemption, age exemption and pension, employment and investment deductions would all be abolished and rolled into a basic income paid to all individuals without means test or formal work requirement.

The program could be further enriched by incorporating existing unemployment insurance provisions as well. A UIC scheme addressed to income continuity for those with generally secure opportunities in the formal labour market might be established on private, rather than social, insurance principles, with any public resources freed thereby flowing to the higher priority basic minimum income.

In place of the abolished programs and tax provisions, there would be a set of basic federal income guarantees intended to function as an income supplementation tier. The federal government would thus assume responsibility for the "working poor" and provide a nationally uniform minimum income for all Canadians. Provinces would then have full responsibility for providing the top-up income support to the poorest, and could tailor this income support to region-specific factors in ways that are perhaps inappropriate for the federal government.

To address the issue of progressivity, the GI/ST actually incorporates a two-step tax rate structure., rather than the completely flat tax described above. One single basic federal rate of tax, applied to net income, would replace all existing income tax brackets. A surtax on income above a certain threshold would then be levied on total income. With no personal exemptions, tax would start on the first dollar of net income. The federal-provincial tax collection agreements would be retained, but provincial tax rates as a percentage of the new federal basic tax (including the surtax) would be reduced to reflect the resulting, broader tax base. (It should be noted that the simplicity and attendant efficiencies of the flat tax rate of the GI/ST would be lost if provinces were to impose their own complicated rate structures.)

In terms of delivery and responsiveness, the GI/ST lends itself to the use of the source withholding system for income tax because the integrated basic flat rate of tax applies over the entire income spectrum and uses the individual as the tax paying/beneficiary unit. As income testing could be substantially integrated with the source withholding system, the issue of universality vs. selectivity becomes considerably less relevant. A more relevant issue is whether spouses who stay at home to care for children and elders should receive their own and their dependents' guarantees in full, or whether these should be netted against the working spouses' income tax liabilities.

The GI/ST could be more targeted to the upper and lower ends of the income spectrum, and also more targeted in its redistribution within and among family groups. Under the GI/ST design explored by Wolfson in 1986, just under half of all families would experience net declines in disposable income. Wolfson contends that the conceptual changes involved in the GI/ST are more daunting than the practical changes in delivery systems. At the federal level there would no longer be any difference between income transfers and income taxes; both would be part of the same integrated system whose primary objective is redistribution. A possible obstacle, however, might be that "bureaucrats involved with the welfare and transfer system are unlikely to recommend substantial simplification to the current system because they would, in effect, be suggesting major disruption in their own [professional] lives." (Brander, 1992.) Also, potential beneficiaries of piecemeal redistributive programs will lobby hard for their continuance, and a proliferation of specific policies will typically generate more votes than a systematic overall redistributive system-- political incentives which are not easily ignored. However, the fiscal incentives may yet outweigh the risks. The GI/ST is more elastic with respect to real income growth than the current system. This means that the federal deficit would fall more quickly with GI/ST as the economy moved toward full employment and real incomes grew than under the current income security system. (Wolfson also notes that the netting of benefits against taxes owing can have a large impact on total dollar flows and a corresponding effect on the apparent size of the federal government, depending on whether the income guarantees are treated as direct spending programs or refundable tax credits.)

Parker (1989) argues for a similarly integrated tax and transfer system in Britain and puts forward a partial basic income guarantee as a feasible alternative to the residual welfare state. Under this system, an equivalent basic living standard is guaranteed to each person through a combination of partial basic incomes; income supplements for widows, expectant mothers, the elderly, the disabled, and home-based caregivers; and benefits provided by local governments through a mix of private and voluntary agencies. Individuals desiring a percentage of previous earnings during sickness, unemployment or old age would be expected to make the necessary provision through private insurance or collective agreements. This system reduces unit labour costs by lifting the lower paid out of net tax through earned income tax discounts and tax exemptions for work-related childcare costs. It reduces labour costs by abolishing all unemployment insurance contributions. It encourages the acquisition of new skills by providing income support during training, and it promotes labour market flexibility by minimizing administrative procedures.

Atkinson (1993) argues for a slightly different national minimum income for the United Kingdom which combines an improved social insurance system with a non-means-tested basic income, conditional upon participation in the work of society. He defines participation as working, being unemployed but available for work, engaging in approved forms of education or training, caring for young, elderly or disabled dependents, or undertaking approved forms of voluntary work. The "participation income" would cover people who are absent from or unable to work due to sickness, injury or disability, or a failure of the system to generate a spot in the formal economy. The condition, therefore, is not paid work, but a wider definition of social contribution seen as a basic personal responsibility. As Selbourne (1994) argues, "individual co-responsibility for the condition of the civic order is not only as necessary to 'progressive order' as is individual right, but is ethically and logically prior to it, and, in the form of enforceable citizen obligation, is a foil to the a-civic and anti-social claims of dutiless right."

Overall, a minimum participation income, along the lines of either Atkinson, Parker or Wolfson, would function as the lubricant necessary to cushion the shocks of adjustment to and in the new world economy. It is the logical support to an emerging dual structure within the economy where a competitive, high productivity, high-income, technology and capital-intensive sector with its rapid redeployment of labour co-exists with a publicly financed, labour-intensive service sector which cannot justify comparable wages, especially while operating under conditions of continuing fiscal restraint. As Kennedy (1989) note it also promises much more efficient labour markets..

It is worth noting that this sort of scheme is not inconsistent with--indeed, complements well--an alternative approach based on recognizing the possibility of restructuring incentives toward reduced hours of work, particularly in the high-income enclaves of the labour market. The 1994 edition of the Human Development Report contains a brief reference (p. 39) to very positive experience with job-sharing as another avenue to reduced unemployment and improved income distribution. With the broader concept of work and participation advocated in this paper, implementation of this approach is in some sense simplified: it amounts simply to shifting the balance at the margin between contribution in the formal workplace and contribution in civil society or the informal workplace.

The minimum participation income, then, becomes a form of social consensus on fair ground rules for sharing the burden of adjustment costs. But the proposal is not without cost. Even though it might be made fiscally neutral in aggregate, the GI/ST does involve redistribution. Both Wolfson and Atkinson identify this clearly. The question then is whether there exists yet in Canada any appetite for such redistribution, or any prospect of the necessary tax changes. ( Ignatieff (1984) reminds us that "in the welfare state, old divisions of class have been re-expressed as divisions between those dependent on the state, and those free to satisfy their needs in the market place." Such divisions may yet block any significant social policy reform in Canada, even in the longer term.)

Volumes have been written on all these issues; several which have addressed specific design questions in the context of a complete simulation model have been cited above. Without going into specific features, the simple point of this section is that a reasonable case can be made for the feasibility and effectiveness of an integrated system for delivery of some assured basic minimum income.

"Once the great dialectic was capital versus labour. Now it is the conflict between the comfortable and the deprived. And the comfortable see government as the threat because it is the only hope for the deprived." (John Kenneth Galbraith, Mother Jones, March 1994, p.38.)

All the above is well and good, as thoughts for the longer term. But there is no denying the urgency of the current fiscal crisis, or the simple arithmetic of accumulating debt. We must address our foreign debt, as a basic constraint on sovereignty and government policy discretion. We must address our government debt more generally, because interest payments increasingly eat up program space. Addressing these obstacles, particularly the former, undoubtedly entails a considerable period of "underspending" as a nation--a course on which the federal government has embarked and to which it seems committed. But underspending need not mean underinvestment. Tax and spending changes both should aim at encouraging reduced consumption rather than the abdication of social responsibilities or the loss of social investment. Much remains to be done, along the lines discussed above, even now.

The threat of capital strike is everywhere. It is said that if we do not produce what the gnomes of the rating agencies like in the way of budgets, essential capital inflows will dry up. If we do not do what corporations would like in the way of taxes, plants will move. This argument may be overdone. Survey data and anecdotal evidence suggest that location decisions are considerably more comprehensive than it implies. The location decisions of firms take into account the availability and character of skilled labour force. And a cohesive body of skilled people seems more likely to be available if the quality of life is there. Natural capital and social capital are not mobile (though both are exhaustible). The growth of a networked civil society makes it less likely that firms will see advantage in chasing each other in a "race to the bottom", where countries compete to offer the most lax regulatory environment or the most generous tax regime. Indeed, the relative lack of mobility of scarce natural and social capital provides a basis for the reintroduction of theories of comparative advantage, which have been seen to be increasingly irrelevant as a basis for reasoning about social welfare in a world of where human and intellectual capital are mobile, along with financial capital, goods and services. (See IISD (1992) or Daly (1993b) for an outline of the argument that, in a world of mobile factors of production, analyses based on comparative advantage no longer serve.)

*