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Rusty Nail on the Information
Highway:
User Charges and Canadian Federal Government Information
Harry Hillman Chartrand
The attempt to make the federal government more cost effective has a
long and chequered history. Today, the attempt is being made to discipline the
Public Service of Canada by extending user charges to more and more federal
government goods and services. According to Treasury Board's experts, user
charges are appropriate for only some federal goods and services. They propose
six criteria to determine whether or not such charges are appropriate rather
than relying on general taxation. Application of these six criteria indicate
that, while appropriate for some federal goods and services, user charges are
inappropriate in the case of federal information. They may prove to be a rusty
nail on the up-ramp of Canada's information superhighway.
La
tentative de rendre le gouvernement fédéral plus rentable a une longue histoire
mouvementée. Aujourd'hui, la tentative est faite de discipliner
l'Administration publique fédérale du Canada en étendant les frais
d'utilisation à plus en plus de biens et de services du gouvernement fédéral. Selon
les experts du Conseil du Trésor, les frais d'utilisation sont appropriés que
pour quelques biens et services fédéraux. Ils proposent six critères pour
déterminer si de tels frais sont appropriés plutôt que de compter sur l'impôt
général. L'application de ces six critères indique que tandis qu'appropriés
pour quelques biens et services fédéraux, les frais d'utilisation sont
inadéquats dans le cas des renseignements fédéraux. Ils peuvent s'avérer un
clou rouillé sur la rampe ascendante de l'inforoute du Canada.
Introduction
The
attempt to make the Public Service of Canada more cost effective has a long and
chequered history. Milestones along the way include: the Glassco Commission of
1962; Planned Programme Budgeting Systems (PPBS) of the '60s and early '70s;
the Lambert Commission of 1979; and, Management By Objectives (MBO) and Zero-Based
Budgeting (ZBB) of the 1980s. Why these efforts failed remains, for purposes of
this article, an open question. Whatever the reasons, the pressure of deficits
and debt in the 1990s has led the Government of Canada to renew its effort. This
time the chosen mechanism is extension of "user charges" to a
widening range of federal goods and services including information.
The
rationale for this new strategy is presented in "User Charging in the
Federal Government - A Background Document" published by the Treasury
Board of Canada on February 7, 1997. The authors, Richard M. Bird and Thomas
Tsiopoulos of the International Center for Tax Studies at the University of
Toronto, justify user charges as a means to increase the efficiency of the
federal work force. "But while user charges may be advocated--or
attacked--as a potential additional source of revenue, their primary economic
rationale is not to produce revenue." They argue efficiency can be increased
through user charges by making managers (workers are not mentioned) more
"cost conscious" and aware of benefits indicated by the
"willingness to pay" of citizen consumers. In effect, they argue user
charges are a second-best solution to the "bottom-line" of the
marketplace.
With
respect to second-best solutions, it is important to differentiate between
"efficiency" and "effectiveness." In the background study,
this distinction is not made. Efficiency in economic terms refers to the ratio
of outputs to inputs. To measure efficiency one must therefore be able to
calculate both inputs and outputs. This is most easily done in the production
of goods rather than services, especially in manufacturing, e.g. cars produced
per worker.
In the
case of many federal goods and most services, however, neither inputs nor
outputs can be readily calculated. Accordingly, a less stringent test--cost
effectiveness--is usually more appropriate. Surrogates or proxy indicators of
inputs and outputs are used. For example, the "recitivism rate" per
parole officer (percentage of repeat offenders) can be used as an imperfect
proxy for output rather than the more difficult to measure concept of
"rehabilitation" measured in human, social, and/or economic terms. Similarly,
average salary per parole officer can be used as a crude surrogate for inputs
rather than the more difficult to measure "opportunity cost" of
relevant financial, human, information, and physical resources in alternative
applications, e.g. early education rather than later incarceration.
Bird
and Tsiopoulos focus much of their argument on theoretical questions associated
with the "marginal costing" of federal goods and services. They do
not directly address the more pragmatic question of distinguishing between
efficiency and effectiveness. They observe, however, that properly designed
user charges often require "collection of complex and difficult-to-obtain
information" and the cost of obtaining such information may be so high as
to make user charges inappropriate.
In my
opinion, the distinction between efficiency and effectiveness can serve as a
general if crude indicator of when and where federal user charges are, or are
not, appropriate. Thus, if efficiency in production of any given federal good
or service can be meaningfully measured, then a user charge may be
appropriately applied. When efficiency can not be calculated, however, one may
conclude that a user charge is not appropriate.
In this
paper I will argue that federal information user charges are inappropriate and
constitute a case of the right tool in the wrong hands. To do so I will first
define the criteria proposed by Bird and Tsiopoulos. I will then apply these
criteria to federal information user charges including their consideration
within the wider context of information democracy and information
infrastructure in the emerging global knowledge-based economy .
Criteria
Bird
and Tsiopoulos propose six criteria to determine whether or not user fees are
appropriate for any given federal good or service. The criteria are used, in
effect, to determine whether a good or service is more a "public"
rather than a private good. Public goods are goods that can be consumed by one
person without diminishing the consumption of the same good by another consumer
and where exclusion of potential consumers is not feasible.
This
distinction is important because "Certain important public sector
activities cannot and should not be financed in this manner," i.e. through
user charges. The authors go on to observe that, "To some extent, the
continuum between purely "public" goods and purely
"private" goods is matched by a similar one between general fund
financing by taxes on the one hand and user charges on the other."
In
principle, a private good generates strictly private benefits for which a
competitive market levies a price capturing all consumer benefits and thereby
covering production costs plus a profit. It is the hope of making such a profit
that motivates private producers. A public good, however, generates benefits
extending beyond individual users, e.g. national defense, immunization against
contagious diseases, clean air and water, etc. The benefits of public goods can
only partially be captured by market price. Accordingly, private producers will
not supply public goods and services, or will not supply them in sufficient
quantity or quality to meet society's demand. Public goods must therefore be
supplied by government or not at all.
For
purposes of this argument I will cluster the six criteria proposed by Bird and
Tsiopoulos into three sets of related pairs. The criteria are:
a. rivalness and excludability in
consumption;
b. economies of scale and
lumpiness in production; and,
c. externalities and
socio-political objectives transcending market outcomes.
a)
Rivalness & Excludability
Rivalness
and excludability are primary criteria for determining if a good or service is
"public" in consumption. Purely public goods and services are
"non-rivals" in consumption, i.e. consumption by one user does not
reduce the amount available to another. If I watch a fireworks display it does
not reduce the amount available to you. On the other hand, a purely private
good such as an apple can be consumed only once and is then not available to
another consumer. "Broadly, the more 'rival' an activity, the more
desirable... it is to charge for it."
Purely
public goods are also non-excludable, i.e. a user cannot be easily prevented
from using a public good or service without paying for it. Extending the
fireworks example, while I may not be willing to pay to enter the stadium, I
can still watch the display from the balcony of my apartment building at no
charge. Private goods, on the other hand, exhibit a high degree of
excludability. Thus if I own a car I can lock the door excluding others from
using it. "Excludability determines whether pricing is feasible."
b)
Economies of Scale & Lumpiness
Economies
of scale and lumpiness are weaker criteria suggestive of whether or not a good
or service may be more or less "public" in production. Economies
of scale refers to decreasing cost per unit output, i.e. it is cheaper--per
unit--to produce more than less. A major factor contributing to economies of
scale is division and specialization of labour. Adam Smith discovered long ago
that more pins can be produced per worker if each worker specializes in one
part of production, e.g. the shaft or the head. In most industries there exists
some "minimum optimum scale" of production. Below this level, cost
per unit output is too high to be competitive. "With unit costs decreasing
as scale increases, efficient private sector provision...can be difficult to
achieve." 10
Lumpiness
refers to the sheer size of initial investment required to produce a given good
or service. While a pin factory can begin as a one-person firm with a minimum
investment, a long distance telephone network requires an enormous initial
investment before the service can be provided. Put another way, an enormous
amount of initial cost must be "sunk" before production of long
distance services is possible. Hence lumpiness is also called "sunkeness
of cost." 11
A
"lumpy" private good like a telephone network exhibits rivalness and
excludability, i.e. a limited number of lines are available to subscribers or
pay-per-use callers who compete for access, especially during peak hours. Public
goods, on the other hand, like an immunization campaign against a contagious
disease requires an enormous initial investment, but users are additive or
collaborative in consumption, i.e. the more who consume, the greater the
benefit to all.
In the
case of both economies of scale and lumpiness, the authors of the Treasury
Board background study note that: "A traditional argument for public
provision of certain services in Canada has been the sheer size of the initial
investment required." 12
c)
Externalities & Socio-Political Objectives
Externalities
and socio-political objectives are criteria that transcend the marketplace and
are critical in determining whether or not user charges are appropriate for a
given federal good or service. Externalities are the unintended benefits or
costs accruing to persons other than direct consumers or producers. The classic
cost example is downstream pollution from a mill or factory. In the absence of
anti-pollution laws, a mill may discharge effluent into a river at no cost to
its owner. Downstream, however, citizens and communities drawing water from the
river must either pay to remove the pollution or suffer the health effects of
it. The mill need not "internalize" these "external" costs
of production into the market price of its output. A case of positive
externalities is an immunization campaign against an infectious disease. Thus
someone fearful of needles need not be immunized to enjoy the benefits, at low
risk to him or herself, if everyone else in the population is immunized.
Many
public goods are produced by government because of external effects. For
example, while the private benefits of municipal roads, sewers, and clean water
supplies are positive, no single individual or company can afford to provide
them and/or the political implications of monopoly are unacceptable in a
democratic society. Such "social overhead capital" improves the
health and economic well-being of established citizens and also serves to
attract new private investment. While some social overhead capital is
utilitarian or functional in nature, for example, roads, there are also
"amenities" like parks, recreation and cultural facilities. The role
of such amenities is captured in "the amenities theory of industrial
location." In this regard, a number of years ago the Arts Council of Great
Britain ran with the advertising slogan "What sunshine is to Florida,
theatre is to London!"
Social
and political objectives refer to non-economic benefits and costs that are
considered sufficiently important to justify collective public action. In the
case of benefits, such goods and services are called "merit goods." In
the case of costs, they are called "demerit" goods and services. There
are thus times and situations in which a democratic government decides that the
free market is not producing socially or politically acceptable outcomes. In
such cases, government may choose to override the marketplace.
A
traditional cost example is the criminal law system, which applies the coercive
powers of the State to stop activities that, at any point in time, are viewed
as harmful to society, e.g. Prohibition. A classic benefit example is regional
development. Market outcomes may leave a given region poor and underdeveloped. The
federal government may use tax dollars to supplement local income or services
or offer incentives--favourable loans, grants, or tax relief--to private
enterprise to locate in such regions even though the market clearly indicates
this is not an economic decision. In such cases the goods and services provided
constitute "merit goods," the most extreme case of public goods. Such
goods or services are deemed by a democratic government to be good for society
even though the market, for economic or other reasons, is unable or unwilling
to provide them.
Application
to Federal Information
Having
defined the six criteria proposed by Treasury Board's experts, I will now apply
them to federal information user charges to determine whether or not such
charges are appropriate. I will not consider federal user charges in general. In
many cases they are, in my opinion, an appropriate mechanism to increase the
cost effectiveness of government.
Rivalness
& Excludability
Information
is non-rival in consumption. In fact, it appears to have the opposite
characteristic, i.e. it is collaborative or additive in consumption. In the
case of research, for example, consumption of information by one researcher
leads to production of new information by other researchers leading to more
consumption and yet more production.
Information
is, by nature, non-excludable as is evident by the need for special legislative
action to create intellectual property rights, e.g. copyright. Even copyright,
however, does not protect information as such but rather its fixation in
material form, i.e. ideas are not protected but rather the specific form of
their expression. Such laws, which vary between countries and cultures, recognize
exemptions from copyright infringement. For example, rights are limited in time
and are subject to specific or general exemptions from infringement. The
general case is to be found in the American copyright concept of "fair
use." In essence, this means a nonprofit use does not constitute an
infringement. Furthermore, in the United States there is no "Crown
copyright" in government information.
In
Canada, however, the operative concept is "fair dealing," which
limits exemptions from copyright infringement only to specified instances, e.g.
it is not an infringement for an agricultural or industrial fair receiving
public funding to play recorded music. Furthermore, Crown copyright in works
produced by the Government of Canada and the provinces exists in Canada. More
restrictive infringement provisions in the use of Canadian information together
with Crown copyright results, in many cases, in Canadian researchers and
citizens having a cost incentive to access relatively inexpensive U.S.
information in preference to Canadian information.
Economies
of Scale & Lumpiness
To the
degree that information is additive in nature then economies of scale can be
expected in the production of information. For example, having constructed
enormous data bases such as taxation and health statistics, the Census,
Estimates, the Public Accounts, and environmental data, new information can be
generated by cross-referencing existing information at a much lower cost than
that of original collection. For example, socio-demographic data from the
Census can be electronically correlated with environmental data to determine if
there are meaningful relationships between life expectancy and selected
environmental quality indicators. This, in turn, may direct public policy
towards limiting the health cost impact of negative environmental factors, e.g.
automobile exhaust.
In the
case of many federal data sets, lumpiness is also apparent. An enormous initial
investment has to be made by the federal government to develop its data
systems. Furthermore, this investment must be maintained by continually
updating data sets and training new generations of federal experts about the
"ins and outs" of such information. For example, in responding to the
reporting requirements of the Corporation and Labour Union Returning Act,
company A may use one set of accounting principles while company B uses
another. It takes experience and understanding on the part of federal
statisticians to "standardize" these differing responses.
An
example of lumpiness and the public good nature of federal information is the
Census. It is unlikely that any private sector actor could afford to conduct a
census of all the Canadian people. Typically private sector surveys involve one
to two thousand respondents. The Census involves millions of respondents. Furthermore,
without the coercive power of the Statistics Act, respondents would be unlikely
to reply in meaningful numbers.
Externalities
& Socio-Political Objectives
The
powerful external effects of information are most evident in economic theory
where it is assumed that for a perfectly competitive marketplace to exist there
must be "perfect information." If buyers and sellers operate in
ignorance or with unequal access to relevant information then market outcomes
will be distorted. In practical terms, this is recognized by security exchange
laws around the world that make "insider trading" in stocks and bonds
illegal.
In the
case of federal information, external benefits include, among others,
"serendipity" in scientific and social research, enhanced business
efficiency, and education. Serendipity or "happy unexpected
discovery" is a characteristic of scientific and social research. For
example, a veterinary scientist "playing" with disciplinary data in
conjunction with federal environmental data may discover correlations between
the rise in livestock-specific diseases and climate change. If federal
information is available at little or no cost, the researcher can afford to
follow a "hunch" and/or by accident come across such a correlation. If
federal data is costly, the researcher may not be able to afford to play. The
livestock industry may thereby suffer growing and unnecessary losses.
Business
runs on information--information about markets, about competitive products and
services, about new scientific breakthroughs, about demand and changing
demographics of customers. All things being equal, the more information
available, the better the decisions made by business. Federal information is no
different. If Canada is to be competitive with other nations its information
costs must be competitive. As noted above under (a) Rivalness and
Excludability, Crown copyright and more limited exemptions from copyright
infringement appear to make Canada less competitive relative to the United
States. Federal information user charges would tend to increase this burden.
Education
is another external effect of readily available information. An example of
government action to increase the external benefits of information is the
public library system. Society as a whole benefits the more citizens read. Public
libraries are therefore a "merit good" promoting literacy and
informed citizenship. To the degree federal information user charges limit
access to information, they limit the educational benefits of federal
information restricting them to those with the ability to pay. In welfare
economic terms, this represents a "regressive" outcome, i.e. those
needing the educational benefits of federal information most, that is the poor,
are least able to afford access to such information.
With
respect to socio-political objectives, at least two would be advanced if
federal information charges were not imposed or were minimal. The most
politically significant is "information democracy." If citizens are
to make informed electoral choices and government is to be transparent and held
accountable then the information upon which government makes its decisions
needs to be available and accessible to citizens. Federal information user charges
inhibit the ability to make government action transparent to public scrutiny
and limits the ability of citizens to hold government accountable.
Attainment
of a second socio-political objective is impeded by federal information
charges: development of Canadian information infrastructure. The federal
government has set the objective of linking all rural communities to the
Internet by the year 2000. This constitutes the hardware half of the emerging
Canadian information superhighway or Canada's post-modern information
infrastructure.
The
other half of the equation, however, involves "Canadian content." Canada
is a net importer of information, particularly from the United States. In the
case of broadcasting, the federal government, through the Canadian Radio
Television and Telecommunications Commission, imposes Canadian content
requirements. These requirements are considered by many to constitute a major
weapon in defending Canadian cultural sovereignty.
If
Canada's presence on the Net is to be significant and its citizens are to have
ready access to information about their own country then federal information
user charges represent a potentially significant barrier to "Canadian
information sovereignty." In this regard some observes have noted that
intellectual property and information policy represent the new "CPR"
for Canadian nation-building in the emerging global knowledge-based economy. 13 The information superhighway is not yet
completed. Federal information user charges may represent a rusty spike or nail
on the up-ramp to the Canadian section of the highway. Eliminating or
minimizing federal information user charges could be the golden spike that
allows Canada and Canadians to drive smoothly onto the up-ramp of the emerging
information future.
Conclusion
Accordingly
to Treasury Board's experts, user charges are appropriate for only some federal
goods and services. They propose six criteria to determine whether or not such
charges are appropriate rather than relying on general taxation. Application of
these six criteria indicate that, while appropriate for some federal goods and
services, user charges are inappropriate in the case of federal information and
may prove to be a rusty nail on the up-ramp to Canada's information
superhighway.
References
Bird,
R.M and T. Tsiopoulos. "User Charging in the Federal Government - A
Background Document." Ottawa: Treasury Board of Canada, 1997.
Drury,
C.M. "Planning Programming Budgeting Guide" Ottawa: Treasury Board,
1969.
Lambert
Commission. "Royal Commission on Financial Management and
Accountability." Ottawa: Minister of Supply and Services, 1979.
Paquet,
G. "Science and Technology Policy Under Free Trade," Technology in
Society. Volume II. Pergammon Press, 1990: 221-234.
Notes
[1] May
be cited as/On peut citer comme suit:
Chartrand,
Harry Hillman. "Rusty Nail on the Information Highway: User Charges and
Canadian Federal Government Information," Government Information in
Canada/Information gouvernementale au Canada 3, no. 4 (1997). [http://www.usask.ca/library/gic/v3n4/chartrand/chartrand.html]
[2]
Harry Hillman Chartrand
Cultural Economist
Saskatoon, Saskatchewan, Canada
[3]
R.M. Bird and T. Tsiopoulos, "User Charging in the Federal Government - A
Background Document" (Ottawa: Treasury Board, 1969), 7.
[4] Bird and Tsiopoulos, 13-18.
[5]
Bird and Tsiopoulos, 18-19.
[6]
Bird and Tsiopoulos, 8.
[7]
Bird and Tsiopoulos, 8.
[8]
Bird and Tsiopoulos, 8.
[9]
Bird and Tsiopoulos, 8.
[10]
Bird and Tsiopoulos, 8.
[11]
Bird and Tsiopoulos, 8.
[12]
Bird and Tsiopoulos, 8.
[13] G.
Paquet, "Science and Technology Policy Under Free Trade, Technology in
Society Volume II (Pergammon Press, 1990), 221-234.
http://www.usask.ca/library/gic/v3n4/chartrand/chartrand.html
Government
Information in Canada/Information gouvernementale au Canada, Volume 3, number/numéro 4
(Spring/printemps 1997)
Retirado de: http://www.usask.ca/library/gic/v3n4/chartrand/chartrand.html
Em 26/05/04.