The Fraser Institute and the Flat Earth Society

'There are, to put it mildly, serious questions and doubts about its research methodology.' - NUPGE's Larry Brown.

By Larry Brown
National Secretary-Treasurer
National Union of Public and General Employees (NUPGE)

Ottawa (3 Sept. 2009) - Pointing out that the Fraser Institute has released a perverse study ignoring established facts in order to make its case is a bit like pointing out that the sun rises in the east. It’s kind of self-evident. But the institute's latest bit of silliness is over the top even for the notoriously fact-averse Fraserites.

In a report released in late August, comparing labour laws in Canada and the U.S., the institute argues that our labour laws are too “tilted in favour of unions”. This “imbalance” is a problem because, it claims, “empirical evidence from around the world indicates that jurisdictions with more flexible labour markets enjoy better labour market performance.”

Empirical evidence? It’s possible. There actually is a Flat Earth Society claiming to prove that the earth is flat. And some people still claim to have seen Elvis alive. But most people expect proof of a theory to be based on a bit more substance.

Consider the World Bank, not noted for being overly supportive of unions. The World Bank issues an annual report called Doing Business. It used to include a section dealing with labour laws and regulations. Countries were rated through an Employing Workers Indicator (EWI) and ranked according to whether there are good labour laws and regulations in place. At that time, the World Bank claimed that countries with the lowest level of protection for workers had the best labour regulations.

World Bank changes its mind

Because the World Bank used to do this, they were criticized by many organizations, not least the tri-partite International Labour Organization (ILO), made up of governments, employers and unions.

The ILO noted that this World Bank report was:

• “A poor indicator of investment climate and of labour market performance”;
• That there were “serious methodological and technical limitations with the indicator”;
• That “there is a serious problem with promoting reforms of labour law based on ... cost-minimization principles”;
• That it did not "consider the wider economic benefits" of labour market regulations;
• “The benefits, economic and social, emanating from labour regulations" were not considered, and,
• "The narrow and limited methodological foundations for the EWI are insufficient and possibly damaging as a guide to policy formulation.”

The ILO paper concludes: “The index is based on a myopic view of the labour market that if adhered to cannot guarantee improved economic performance or employment. It thus sends misleading policy messages that, if implemented, risk hurting workers but also business and the economy in general.”

Criticized by bank's own experts

But perhaps the most telling blow came from the World Bank's own Independent Evaluation Group (IEG), which issued a report in which it questioned the bank's methodology and noted that it had found no evidence for the long-standing claim that countries with weaker labour laws showed improved performance in employment creation.

Barney Frank, a Massachusetts congressman who chairs the financial services committee of the U.S. House of Representatives, has also been a vocal critic of the World Bank’s labour indicator.

Frank said in 2007: "It is simply wrong for the major international institution in the world, the World Bank, to be putting out a report in which the worse you treat your workers, everything else being equal, the better you are rated.... Excessive inequality can become politically dysfunctional, and to the extent that it begins to depress consumption, depress savings rates, it can become economically dysfunctional.”

The result of all this informed criticism? The World Bank has decided not to continue with their EWI. Actually, the International Monetary Fund (IMF) bailed first, telling its own staff that "in light of various methodological problems with the (World Bank) index ... mission teams should refrain from using the World Bank’s EWI in any public documents ..."

EWI discontinued in 2008

Then in March of 2008, the World Bank issued a memorandum to its directors instructing them to stop using the EWI. “The EWI does not represent World Bank policy and should not be used as a basis for policy advice or in any country program documents that outline or evaluate the development strategy or assistance program for a recipient country," the memo said.

The World Bank concluded that, “the business climate is one aspect of development policy, and the Bank emphasizes that other development goals must also be given appropriate weight. These include issues as diverse as political stability, social safety nets to shield vulnerable parts of society from intolerable levels of risk and protection of rights for workers and households as well as for firms.”

So the World Bank, with all of its international research weight, has concluded that the very ‘facts’ asserted by the Fraser Institute are simply wrong. The ILO and the IMF reached the same conclusion.

Of course the reality that weaker labour laws are a bad idea both socially and economically is not exactly breaking news. The ILO did an earlier report concluding unambiguously that countries with a good record on labour rights do better in world markets.

OECD view

The Organization for Economic Cooperation and Development (OECD) has found after solid research that countries with a high level of unionization are much more equal than countries with low rates, and that the gaps between high and low pay is lower where there are strong unions. Of course the Fraser Institute probably thinks that’s a bad thing.

And the World Bank has issued a study showing that high unionization rates lead to more equal distribution of income, decreased wage discrimination against women and minority workers, and improved economic performance for the country concerned.

Blind to all these well established facts, the Fraser Institute’s new report actually claims that the best labour laws in North America are to be found in the southern U.S. States, where so-called Right to Work laws (legislation that deliberately weakens unions) are in place.

A cursory look at the facts would have shown that in those states "Right to Work" laws lower wages and benefits for all workers. Workers in "Right to Work" states earn far less and have fewer benefits than their counterparts in states with more progressive labour laws. The studies show that these laws create a climate in which businesses may increase profits because of lower wages but that's not good for the state or its workers.

Spillover effect

When wages fall, state revenues from income tax and sales tax also fall. That means the state has far less funding available to finance education, transportation and other programs that are vital to attracting new industries and businesses.
 
The Fraser Institute, in its rigorous research, may have simply read the reports from the National Institute for Labor Relations Research (NILRR). This group is an arm of the National Right to Work Committee and it has an anti-union political agenda. There are, to put it mildly, serious questions and doubts about its research methodology. There are many reports available from reliable sources that completely contradict the NILRR - if the Fraser Institute had only looked beyond its pre-determined conclusions.

Of course, the Fraser Institute has received millions of dollars from the Donner Canadian Foundation and the Max Bell Foundation. These groups are known for their devotion to right-wing ideological causes in Canada, such as anti-union laws, for-profit health care, private schools and the private delivery of social services. The Fraser Institute also routinely collects money from big oil and gas companies, such as EnCana and Sabre Energy, and big pharmaceutical companies, such as Pfizer.

One could suggest that the Fraser Institute, therefore, is only doing what its sponsors want, irrespective of the facts. That might suggest that this report was deliberately slanted to reflect the views of its right-wing corporate sponsors and once more attack laws that protect employees.

But let’s be fair to the Fraser Institute. If you believe the world is flat you aren’t going to venture out to the edge for fear of falling off.

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE