Government Information in Canada/Information gouvernementale au Canada, Volume 3, number/numéro 4 (Spring/printemps 1997) User Charges and Canadian Federal Government Information 1
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." 3 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. 4 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" 5 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. 6 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." 7
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 &
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." 8
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." 9
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] [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.
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