Wealth Inequality and Inclusive Growth with Matthew Mendelsohn

Uncommons with Nate Erskine-Smith

On this episode Matthew Mendelsohn joins Nate on the podcast to discuss the issue of wealth concentration and its threat to democratic stability. They discuss practical solutions to address wealth inequality, trust in democratic institutions, the role of the federal public service and the need for a competent and responsive government.

Matthew's extensive background includes serving as the Deputy Secretary to the Cabinet (Results and Delivery) in the Privy Council Office of Canada, where he played a key role in developing and implementing the federal government's policy agenda.

His work focused on achieving measurable results and improving government performance, particularly in areas related to inclusive economic growth, tax reform, and public service effectiveness.

Nate and Matthew explore the concept of inclusive growth, which focuses on equitable and sustainable economic growth benefiting both communities and individuals. They also highlight progress made on Indigenous issues and the need for transparency and risk-taking in the civil service.

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Transcript:

Nate: Welcome to Uncommons. I’m Nate Erskine-Smith, and on this episode I’m joined by Matthew Mendelsohn, a great thinker in Canadian public policy over the last number of years.

He has done many different things in this space. He has been a professor at TMU and Queen’s. He has founded the Mowat Centre, which was at U of T and the Monk School, and obviously canceled because we had a Doug Ford government here in Ontario after 2018. He, federally, he was the chief architect of the 2015 election platform for the Liberal party.

He led efforts to write and create openness around those ministerial mandate letters out of the 2015 election, and he led the Prime Minister’s results and delivery unit from 2016 to 2020. Now more recently and currently, he’s the CEO of Social Capital Partners. It’s a great organization focused on the social good in many different ways, from social enterprise to employee ownership to so much more, including a more recent focus on wealth concentration and wealth inequality.

That’s a big part of this conversation. We talk about wealth inequality, what we can do about it. We talk about democratic resilience and the connection to a lack of inclusive growth, a lack of equality, and too much concentration in wealth.

And we talk about the ability, or inability at times, of the federal public service to get big things done.

Statistics of Wealth Concentration

Nate: Matthew, thanks so much for joining me.

Matthew: Thank you for having me, Nate.

Nate: So you and I have come across one another when you were working in the federal government, but you were no longer working in the federal government. You left in 2020. You're still doing very interesting things. And before we get into some conversations about your work in the civil service and your history in politics and in public service, you're now at Social Capital Partners. And the current work of Social Capital Partners is very much focused on wealth concentration, which is an issue that I have a great interest in.

So let's start there and let's start with social capital partners, your role there, and the work that you're doing on wealth inequality.

Matthew: So Social Capital Partners is a not-for-profit that has been focused on impact investing, social enterprise, financial inclusion for over 20 years. Over the last five years, we have started to focus on the issue of wealth inequality, wealth concentration, the threat that it represents to democratic stability and democratic societies, the fact that it's not getting nearly enough attention, I think, in the public debate.

And we have been focused on very practical solutions. So at Social Capital Partners, we have always been interested in very practical, actionable ideas to push back against, earlier time, financial inclusion, but now wealth inequality.

So we've been leading the work that your government has supported around the creation of employee ownership trusts, making it easier for retiring business owners to sell their businesses to their employees rather than to private equity or to a competitor. And this creates options for business owners, but it allows workers to build state equity pathways to wealth in the businesses that they are working for and building.

It also creates more community resilience, that you have small and medium -sized businesses that are being run and owned, and with equity and deep roots in the community, with the people who work there and live there rather than being run by multinational global private equity funds out of New York or heaven forbid Toronto.

So that work is really important to us and we think that the wealth concentration question is not getting nearly enough attention in any of our discussions. The productivity discussion and the democracy discussion, the economic growth discussion. And our goal is to identify really practical policy and legislative changes that can push back against what I think everyone sees as a huge problem, which is the pooling up of wealth, like unbelievably mammoth pools of wealth in fewer and fewer hands, and more and more challenges for young people to buy a home, to save for retirement, to build economic security. So that's what we're focused on.

Nate: And let's dive into the specifics of that challenge in some ways, because StatsCan counts some of the numbers, but they count it very poorly in comparison to what we see in other jurisdictions, especially in the US. And I was following along with the work that Social Capital Partners has done through Billionaire Blind Spot, a report that better tracks wealth inequality in this country. And it's shocking. So it's...

Correct me if I'm wrong here, but it’s that the top 1% owns 26% of all wealth in this country, and the top 0.1% owns more than 12% of the wealth in this country. And it's not as bad as the US, but it's close to as bad as the US, and it's much worse than the picture that StatsCan provides to us.

Matthew: Yeah, that's right. And I don't want to overstate the accuracy of our work, but what we did, Dan Skilleter, our Policy Director, combined a bunch of different publicly available data sets. I'd also point out that the Parliamentary Budget Officer did good work on this and their work is out there publicly. And it's just very different than what StatsCan reports. And I think it's useful to remember that whether it's StatsCan or PBO or an academic study, a lot of these things are estimates, not just on wealth, but on lots of the data that we use publicly. We use it because we need to use something, and it helps us understand the world, but certainly around how one measures wealth, what gets counted, what gets reported.

I mean there's lots of uncertainty and ambiguity there, but the point that you make, and that Dan's report highlighted, was that StatsCan’s numbers are like an extreme outlier in terms of their estimates for wealth concentration. You know, talking about the top 1% from, you know, our estimates and PBO that hold, say, a quarter of all Canadian wealth and the top 0.1% owning, holding, you know, 11 or 12% of the wealth. It's an enormous concentration.

And, you know, while I recognize that StatsCan has some challenges, the US Statistical Agency does a much better job, European agencies do much better jobs, and I would like StatsCan to do a better job. But if they're not going to do a better job, they should at least be a lot more upfront in how bad their data are, and maybe stop recording it, because they put it out and then everyone talks about it and it gets picked up, and yeah, they'll have a footnote or they have a paragraph that highlights that the data probably aren't so accurate. But by the time that gets into public discussion, media discussion, from my perspective, the damage is done. And it allows us to tell ourselves this story about how equal we are and everyone has a fair chance. And sure, obviously, if you're born wealthy, you're more likely to end up wealthy.

And we recognize, you know, challenges for people growing up in more economically vulnerable situations. But we tell ourselves a story about how good we are, compared particularly to the United States. And for me, as someone who believes deeply in democracy, you want a story that citizens hear that aligns with reality. And it just doesn't align with reality.

Young people without access to family wealth in Canada today know how difficult it is to save for a home, pay for rent, pay off student debt, forget about saving for retirement. We understand all of these things are huge challenges. And not only the media narrative doesn't, you know, highlight these enough, but then there are these StatsCan reports that keep getting picked up that say, yeah, no, things aren't so bad after all.

The Role of Capital Gains Taxation Within the Fight Against Wealth Concentration

Nate: And then you have, unfortunately, and you track even over the last 10 years, over this Liberal government's tenure, you have a situation where when we first came into office, there was a conversation around inequality, but it was focused on income inequality. And you had measures focused on addressing that challenge. It wasn't until 2021 in the throne speech that we started to see a small commitment, but a commitment nonetheless, on tackling extreme wealth inequality, although I would argue we haven't really seen commensurate policy action until fairly recently, and other countries are having a more serious conversation in this regard. I know more about this in part because the OECD has done work on assessing wealth taxation, net wealth taxation around the world and what works, what doesn't, and assessing effectiveness. There are academics in the US that have done some very serious work. Obviously, Piketty has done some very serious work on this. But in the UK, there was a wealth tax commission that was comprised of a series of experts that put work out. And so I actually, in the last parliament, put together a motion to address wealth inequality, pulling from that more international literature and expertise. And capital gains taxation is very clearly part of the answer. And we don't really always frame it in that context even in the course of this debate that we're having.

But starting from the point of wealth accumulation, the fact that you've written this, that the benefits from economic growth have increasingly gone to capital rather than workers. Well, what are the solutions? We know we have a problem, so what are the solutions? And net wealth taxation is one answer, and it can be a bit fraught on implementation. And one other answer is to address capital gains taxation and accumulation of that wealth and the increased concentration of it as a result. Do you think we've sufficiently placed that debate around the recent tax changes within this broader conversation around wealth concentration?

Matthew: So this is something that we could talk about for an hour, Nate. So there's so much in what you've just said. I think that the first thing is, you know, are the points you make about growing wealth concentration during the last decade, to me, these are not a commentary on a failure of any particular government. These are global trends that have been taking place.

And as you say, in 2015, as you know, I was involved in writing the Liberal platform in 2015, the Canada Child Benefit and other measures were really focused on income inequality. But over the last number of years, the issue of wealth concentration has become much more important, and much more prominent.

And I do think where in Canada we are behind is that we have not engaged with this debate nearly as much as, I mean, you mentioned Piketty, the European Tax Observatory. There are all kinds of processes going on in European countries and other countries to talk about these issues. I'm not saying they've made lots of progress, and there are lots of problems with a lot of wealth tax proposals, and we're seeing that, but other countries have really, I'd say, engaged in this debate. And in Canada, I really do think that our public discourse, our economic commentary, our established economic think tanks are not engaged with a deep, meaningful, serious, sophisticated debate about what's going on in the economy and what to do about it.

And when we talk about these issues, people say, well, you're going to just raise taxes on the wealthy and then you'll have capital flight, and that's going to be a problem and people are going to take their money to tax havens or to the United States and all of those things are true and we can talk about how to tax wealth in the most effective, efficient ways but there's also a whole series of policy initiatives like employee ownership and others that we can talk about that create more pathways to accumulating wealth and assets and equity for working people.

And so, you know, some of the things we're talking about at Social Capital Partners, and in a number of stakeholder communities, you know, are how do you get lower cost financing to small and medium -sized businesses in small town and rural Canada, which go to big commercial banks, which are highly concentrated, which have very high interest rates, which think about risk in ways that are often quite difficult for small and medium -sized businesses, Indigenous business owners, Black business owners, to get access to capital. BDC, the Business Development Bank of Canada, in my view, could be doing a much better job getting access to capital and access to financing to small and medium -sized businesses in this country.

We have an entrepreneurship problem, but we have an entrepreneurship problem in part because our economy is becoming more and more concentrated. Our economy is becoming more and more concentrated and our financial institutions are not transparent. So there are whole bunch of different things that we can be doing in this country through policy tools, not just tax the rich, although we can talk about that.

We can talk about how you, how you tax people's third or fourth properties as income. In this country, we have not wanted to take on mom and pop real estate investors. We don't want to take them on for their, because we're concerned about their retirement savings. But plenty of mom and pop real estate investors have six, seven, eight, nine, ten, twelve properties, and those properties are not being taxed appropriately. So there ways to get at these things through taxation, but there are also ways to get at these things through policy. And I think, unfortunately, in Canada, we have not framed this issue, wealth concentration, wealth inequality, challenges for young and working people to build assets, as an emergency, as a crisis that requires that we need to focus on it.

Nate: It's interesting, I was in a conversation not so long ago where the couple I was speaking to was quite concerned about the capital gains changes. But when placed in the context of the unfairness we see in housing, when placed in the context of the unfairness generally we see on wealth accumulation, and this is one small way to raise revenue in a more fair way, but also to then take that revenue and deliver it to priorities like housing, the objections soften significantly, especially when they learn that we were taking into account small business considerations and entrepreneurial considerations and that this wasn't about hurting a sense of real entrepreneurship for small business owners.

And I think you're right, that there are many things. You're talking about broadening the ownership of the economy through things like employee ownership. We could talk about how we're a country of oligopolies and we need to break up those oligopolies and have much more competition in this country if we care about productivity for sure, but also if we care about fairness. We can talk about the financialization of the economy and housing is the example of this when it's such an absolute necessity, it is the necessity and yet we have unfortunately treated it as a financial instrument such that it's run away from so many people.

We can talk about tax shelters, and we can talk about the use of corporate profit shifting and all that. We still, of course, have to talk about taxation, even though it's very fraught politics, as politicians discover, for better and worse.

But this conversation around capital gains changes, I found really interesting because when I went down this rabbit hole of net wealth taxation, and my initial instinct had been something more along the lines of what Jagmeet Singh and the NDP had proposed of this very high net worth, a small percentage hit every year or so, the implementation is very difficult. Just the assessing the value of individual wealth can be difficult. It's not to say it's not doable. I've seen others like Gabriel Zucman say it's doable and here's how.

But, when I engaged with the OECD and engaged with folks at the Wealth Tax Commission in the UK, their view was, a one-time wealth tax is very achievable because you don't have capital flight risks in the same way. And then beyond that, the best approach would be some combination of capital gains taxation and inheritance taxation. and gifts taxation. If you combine those measures in a thoughtful way, you reduce the capital flight challenges that we would otherwise see, and you're addressing the challenge still in a very significant way. We at, in fits and starts have talked about this as a generational fairness issue and a taxing very wealthy families and estates issue, but I don't think we've framed it in the context of this broader wealth concentration challenge. There are different ways of approaching this challenge and here's the most efficient way of doing it.

Matthew: So again, there's a lot there and I agree with that. I don't want to underestimate the complexity of trying to do wealth tax, and the challenges of implementing it, and the difficulty in getting it right and fair. All of those things are true and countries have tried to do it and have been unsuccessful at it.

But it does speak to the broader question of our lack in Canada of really sophisticated tax policy debate. So obviously, most people aren't going to be tax experts, but we have a very, very narrow range of people who are to speak on media panels about tax issues. And we need a much broader understanding of tax. We need more capacity. We need more research, people doing this from all kinds of different perspectives. We have a kind of narrow C.D. Howe Institute business perspective on taxation issues, whose instincts are, if you tax capital it will have a productivity hit. And the evidence of that is mixed, but it keeps getting repeated in our mainstream media narratives. And I just think we need a more sophisticated conversation about that.

And at Social Capital Partners, you know, we are going to be doing that and supporting that kind of work so that we can have a sophisticated fairness and productivity tax policy discussion that isn't just repeating things that people read in the first five minutes of Macroecon 101 in 1977. There's a much more sophisticated understanding of how the economy works than what, unfortunately, a lot of our commentators want to repeat and then get repeated in the mainstream media.

And there are a whole series of non-orthodox critiques of how economics and finance operate, that we're just not talking about in Canada, and they're talking about them way more in other places because to me the biggest risk, the biggest emergency is not a productivity emergency that all our mainstream orthodox business lobbyists and Bank of Canada want to talk about.

Our biggest crises and emergencies are housing, infrastructure. For those in Toronto recently, the fact that the city gets flooded when it rains, like that's a problem for productivity and that requires investment. But to me, the biggest emergency and crisis is for young people without family wealth trying to build a stake in society, to build economic security, to build economic security that allows them to go be an entrepreneur, that gives them freedom to fail and make choices and start businesses. So I think we really need to be focused on that issue because if people lose hope that their democracy is delivering them a fair chance, then we've got a real problem.

Defining and Achieving Inclusive Growth

Nate: Well, I want to get to that real problem when we fail to deliver results for people. But before we get to that particular question around resilience in our democracies, you've mentioned fairness and productivity, and sometimes they can be at odds, but on housing they certainly go hand in hand. And as you have written previously, there is growing evidence that more inclusive growth isn't just more equitable, it's also stronger growth. And that fairness and productivity can very much go hand in hand, taking a lens of inclusive growth. I've seen politicians talk about inclusive growth. I was at a talk recently where I asked Mark Carney about this around wealth concentration and what his views on, what did he mean by inclusive growth. Canada Child Benefit is an example of how we might tackle inclusive growth, as one example among a variety of different policy instruments. But when you talk about inclusive growth how do you, how do you best explain it, so it's not at some international forum for policy experts to talk about, but people actually feel it?

Matthew: So most of our public debate at the moment, and all of the, you know, the orthodox economic commentators and the business lobbyists, are speaking about growth and GDP per capita, and we have to increase that. Growth is good. I'm pro -growth, but all growth is not created equal is just not true. And the fact that GDP per capita goes up doesn’t tell you anything about whether people are doing well, whether the economy is sustainable, whether communities are healthy, whether people are building economic security. GDP per capita going up is fine, but it’s just a number. And we have to know the distribution of that GDP, of that economic growth, because if it is creating enormous pools of wealth, and depression in other places, that’s not good. And I do sometimes draw a comparison with public finances and when we look at the budget, the budget reports on numbers, or budget reports on spending.

But we don't do a good job thinking about is this in the medium term economic interests of communities and working people? Is it in the medium term and long term interests of the environment? If you spend a billion dollars, the federal government, if it comes up next budget cycle and a minister comes up and says, I would like to take a billion dollars and set it on fire, and you guys all approve that and you vote for it, it's a billion dollars spent in the budget. And that's how it's booked in public finances. And if you take a billion dollars and invest it in early childhood education, it's also booked as a billion dollars. They both look the exact same, but one is an investment, one is inclusive, one is creating medium term value, and one is obviously doing nothing. That might be an extreme example, because I don't think anyone's going to propose that, but it is an example which highlights that we have to look at these things, not just in terms of how much they cost or whether it creates growth, but what the sustainable long -term benefits are.

The Consequences of Economic Inequality

Nate: I have so many questions about the way to measure government spending, which I will get to later on. But I first want to ask you about the failure to deliver that kind of growth, the failure to ensure that you're bringing more disadvantaged communities along, that you're bringing people along who don't have generational wealth in their own families, that you're making sure that there is opportunity for everyone, that there’s, we don't use this language as much in politics as we used to, but there is that equality of opportunity that is substantive and real. And if we don't have that equality of opportunity, what are the pitfalls? And you have written that wealth concentration is destabilizing democratic societies and that authoritarian populists are winning in many places because in part, the benefits of economic growth have been accruing disproportionately to capital, and so walk me through how you see this inequality challenge, especially around wealth inequality, but the lack of equality of opportunity, how that translates to undermining democratic resilience.

Matthew: Yeah, that's a great question, Nate, and there's a lot there. And there are some facts that are important to highlight that are part of this discussion. You've indicated some of them, but that the benefits of growth have accrued disproportionately to capital rather than labor over the last 30 or 40 years is undeniable.

And so that creates concentration, that creates more and more people who earn more and more of their income, and we'll call it income, could be called different things, from passive investment, or even active investment, or investing in housing and financialization of housing, rather than their labor. And that creates a real chasm, it creates resentment, and it creates social chaos, and eventually it can create social collapse.

You know, I don't want to overstate it or be alarmist, but you know, who is watching what has gone on in the United States over the last 15 years, as more and more people both felt completely economically isolated and disadvantaged, but also that comes with that, not respected, not valued, not seen, not part of the mainstream, creates huge social problems and people opt out of the system.

I think that we in Canada really need to look at what's going on in the United States, and Canada and the United States are quite different countries and there's some facts on the ground that are quite different, but we really have to be attentive to that and we really have to think about what populism means.

One of the things that I'm not super happy about in Canada or in some progressive circles is that we assume populism is bad or that all populism is authoritarian. And that's just not true. I mean, some of the great changes in Canadian history have been populist ones, like challenging the power of concentrated capital, challenging the power of banks to steal people's houses during the Depression, the CCF and the social credit, you know, focusing on the challenges for farmers and working class people at periods of economic dislocation, and building a social safety net and Canada Pension Plan and Medicare. Like all of these things were populist initiatives opposed by the elite at the time.

And so, I think that it's a problem that Donald Trump and MAGA take up so much of our mental room, because there's so many other versions of populism. There's the authoritarian version of populism. And I think that your government, the Liberals over the last number of years, have been building progressive populist agenda, practical populist agenda, challenges around competition, challenges to financial institutions and the amount of interest they can charge, questions around junk fees, and the ability for individual consumers to have access to their banking data and to be able to switch cell phone providers. I mean, there's a whole series of things, which there's lots of cross party support for, I’m not suggesting that this is particularly a Liberal agenda, but there's a whole populist agenda that pushes back on the narrative from, you know, the Business Council of Canada and the business lobbyists, that is focused on the financial interests of working people.

It's a coherent agenda. It's a populist agenda. It's a pragmatic agenda and I think every party at this moment, Conservatives and NDP are good at it, probably historically. Liberals often focus more on elite accommodation historically, but every party needs a populist agenda right now and those will look different between different parties.

But every party has to be speaking to working people who are participating in the economy, who are struggling to pay bills and pay rent, and what specifically is each party going to do about it. And the authoritarian populism view is one that only leads to destruction and death.

And this is another observation that I would make, which is that I think the business community, which spends a lot of time talking about productivity and taxes and taxes on capital and are concerned about the capital gains tax. I would love the business community and smart, sensible, thoughtful, sophisticated business leaders to get engaged in the question of democratic resilience and the protection of our democratic institutions because, you know, I looked at that Republican convention and the labour leaders there, and the business leaders there, they were terrified because it's not good to live in an authoritarian country. It is not good to live as a business person in a country where there's no rule of law, where the ability of your business to succeed depends on the whims of a party in power.

Like we know this, and Canada's huge advantage is we are a country of rule of law, we are a country of opportunity, we are a country of democracy. We believe that our civil service for all its flaws is independent and professional and nonpartisan. We believe our courts are independent and will enforce the law and we will disagree with the decisions they make. But the business community should be concerned about what's going on in some other countries. And they should start figuring out now how they invest in the stability and resilience of our democratic institutions and the rule of law and the protection of human rights.

Communicating Policy and Establishing Trust in Governments

Nate: It's interesting channeling populism, and let's bracket off more authoritarian populism for a moment and some we see obviously out of former President Trump. But in Canada, we have seen, at different points in time, see, let's take the current Conservative leader. He's certainly, I would say, weaponizing a kind of populism on criminal justice to be anti -evidence, anti -following the evidence to, whether it's actually improving public safety, helping people who are suffering from substance use addictions, following the evidence, saving lives in that case. Certainly not helping follow the evidence of what police chiefs have called for even. But it is weaponizing people's fears and it's playing on a certain populism that I think is a little bit worrying.

On the other hand, we have at times failed to channel, and I'll use telecommunications as a fairly obvious example, but we see it in, when we think of our country as a country of oligopolies, you talk about a consumer agenda, a competition agenda, I think we have in fits and starts moved down that path, but we've failed to truly embrace an agenda that would channel that populism to the most that we can, in terms of the collective good. And it can be a challenge sometimes on the tax front especially, because the benefits of the spending from those capital gains dollars are gonna benefit far more people than the tax is impacting, of course, but the level of outrage in the media is outsized because of the ability for certain people to communicate, whether it's the Canadian Medical Association or tech entrepreneurs. But we've done a fair job at times channeling that populism to make some tax changes, whether it was the middle class tax cut when we first got elected and the taxing the 1% a little bit more. It does increasingly become a challenge. There's non -spending populist measures that are easier to channel.

On the spending side, part of the challenge, raising revenue, reducing revenue, reducing spending, I should say, in other places, but you take a tax cut as an example, or a tax expenditure, or a new benefit.

If the middle class doesn't feel it, and if the bulk of Canadian society doesn't feel it, it's, like, take the disability benefit or the dental care benefit that we're in the midst of rolling out in two parts, a lot of families are not gonna feel that, and it becomes a lot easier to roll it back. So one of the successes of the Canada Child Benefit is it is felt by so many people that it's an impossible policy to get rid of. And I'm glad you were part of plucking it out of the Caledon Institute at the time. Now most of the folks at Maytree, but you plucked it out of there and Sherri Torjman and Ken Battle, and you guys made it a reality.

That was successful populist politics, channeling a sense of fairness, and a sense of income inequality and frustration at it to say we're going to do something really important that is in the interest of the collective good. It's tough when it's, Pierre Poilievre’s, promise of a broad -based tax cut. That's sort of a populist measure. He's not told us how he's going to pay for it, he has not told us what it looks like. It's going to be very expensive if it's going to be a broad -based tax cut of any significance.

And it does get harder, at least on the tax expenditure side, and or, the benefits side, to do one of these big programs to touch so many people in a meaningful way that people feel it and that you have successfully managed the politics of it. And so if you want to go from channeling populism in a collective good kind of way, in an important way to preserve democracy and democratic institutions, it's tough to navigate that in a way that it's truly good. You might do it, but is it going to be felt by people in a way that translates into their voting intentions?

Matthew: Yeah, I mean, there's a lot there. I do think we need some significant tax reform. You know, I look forward to engaging with, you know, more specifics, if the Conservatives are making specific proposals because, I mean, the Liberal government tried to deal with the question of individuals as corporations incorporating themselves, and there have been some capital gains tax changes now. But there's a lot of change going on in the economy. mean, one of the StatsCan interesting tidbits. If you look at, you know, changes in income over the last 10 or 15 years across cohorts, like the rich, the top cohorts are not earning a lot more income now than they did 10 or 15 years ago. But that's because so much of their income, in quotation marks, is no longer income, right? They're hiding that income in corporations or in other mechanisms and schemes which are perfectly legal. But you certainly have, at the top end of the income distribution, a lot more people who are earning “income” that doesn't count as income and isn't taxed properly. So I think that there are a whole bunch of things that we should be looking at in the tax system.

But I would also say to your question about the government being able to deliver a big program. If there is a good big program to deliver, a party will make a case and they might be able to win that case. And sometimes it takes 30 years. And many of us have talked about early childhood education for a very long time. And eventually a policy window opens up and the right constellation of factors comes up.

But I'm always hesitant to conflate, you know, bigger government with more equitable, good results on the ground for people. To me, the reality is, you know, the federal public service has been growing a lot. I haven't looked into the data, I'm sure a lot of that is valuable. Some of it may be less valuable. But the reality is that just growing the federal public service doesn't translate into impact and results and outcome on the ground in communities.

My experience is just an observation, is that the federal public service is far more removed from the day -to -day delivery and understanding of what's going on in communities than provincial or municipal governments would be. And while provincial and municipal governments are usually interested in trying to solve problems, the federal public service is usually more interested in managing processes, delivering programs, but whether those programs have an impact or are achieving their results, those things are less important. And for me, a policy person, for you, a politician, I'm sure every day you think about how can a government initiative help solve a problem for a person. That's how we think about the politics and government in policy.

Whereas I think for federal public service, that is very, very abstract. Obviously, individuals care about that, but the system doesn't try and solve problems. The system tries to manage risk, manage process, create process and deliver programs, whether they're effective or not. And so, yeah, I do worry that if you're growing the federal public service or increasing tax revenues, some of those may be useful or not in particular cases, you know, more money in Ottawa, you know, can just get absorbed into the ground around Tunney's pasture, like summer rain. Like it just disappears into the ecosystem of Ottawa-Gatineau without ever being felt in Red Deer or The Beaches or Halifax.

Nate: It's interesting though, it's interesting pulling the two threads together of capacity and delivery in the civil service and effectiveness, and the effectiveness certainly when you're pointing to outcomes rather than just spending. But it's also interesting to pull both threads, that and also the conversation on wealth concentration, and then to pull them both towards that democratic resilience and that question of trust.

There are many different ways you go about building trust and engendering trust among citizens in your democratic institutions. And one is they feel like there's fairness being delivered and they feel the benefits of growth and they feel the benefits of, that the benefits are shared in some more fair way. And that's really a question around policies and taxes and benefit programs. And my concern there is just, how do we make sure they're felt by people in a real way? Because sometimes there can be this huge expenditure, but if it's not felt by people, it's not gonna be a lasting policy.

But you're exactly right, that there's trust in a completely different way. That if someone might feel the benefit from the childcare program, and that's a check mark for the government, and then they go to get their passport renewed and it's another disaster, and they see an influx of temporary residents, especially international students, that are causing major challenges in an acute way on housing in their small or large community, things start, the Canada is broken narrative, that sort of populist narrative that is trying to tap into a frustration with things, starts to be more successful and starts to break some of that trust.

Matthew: Yeah, trust is the foundation of democracy. Convention is the foundation of democracy and that's trust in all kinds of ways. That's trust in institution, that's trust in opponents, that's trust in your fellow citizens, that's trust that the rules are fair, that if you're following the rules or working hard, you have a chance to succeed. And there are lots of people right now, mostly our geopolitical enemies, who are working hard to undermine trust.

All of this discussion takes place, as we know, against a backdrop of geopolitical conflict, where liberal democratic systems are being challenged by Russia, by China, by others. And the decline of trust or the polarization, there are a lot of reasons why that has happened, but part of why it has happened is that people want it to happen because it is there in their interests. Some are just financial charlatans and want to make money exploiting polarization. Some are, you know, active tech firms that are perfectly happy to make billions of dollars driving hate and attention and polarization and anger, but some of it is also geopolitical rivals that really like the idea that Canadians seem to be fighting with each other more, or that British or Australians or Americans are more divided and don't trust one another.

So that trust is being targeted and we all have to think of ourselves as, I think national security actors in some way, that we have to be conscious that what we see is often produced by our enemies who are looking to undermine our society. And it's obviously easy to say that, but I was just reading an article about Finland and because of where they are, they are highly attuned to the fact that each and every one of them are national security actors, that each of them is being targeted all of the time by Russian disinformation.

The Link Between Government and the Public Service

Nate: Yeah, and digital literacy is part of their education system in a much more serious way, it's quite interesting. We could go down a whole rabbit hole on digital literacy and disinformation. To return, though, because of your experience, and you were in the provincial civil service, you played a very senior role in the federal civil service.

Part of trust in governments, whatever political stripe, is the ability of the civil service to deliver what citizens need in an efficient and timely way. And on the positive side of the ledger, in my experience, you've got a civil service that really rose to the challenge of the pandemic in not a perfect way, but a multitude of important ways and delivering programs and really breaking out of old habits to get some new programs up and running in a very, very fast way.

You though, came in in 2016 and there was a real focus on results. And I'm a big baseball nerd, I like Moneyball, I think it's very important that we measure results and we measure the right results and we push, you know, we bring in accountability to the exercise. And it's exactly what you're talking about. It's like, well, are we measuring spending or are we measuring results? Because we damn well better be measuring results.

When you reflect on that experience though of measuring results, and a bit of a culture change that you were attempting to bring, do you see lasting change in that regard? Was it successful change? How much more change is required for the civil service to deliver what we need them to deliver?

Matthew: I mean, as you say, it is really important to be focused on clear outcomes, to be measuring those, to be able to adjust if you're not achieving those outcomes, to stop reporting how much we're spending on something if it's not delivering results.

And that is something we’ve talked about every day for years, let's stop doing press releases that talk about how much money we're spending on something and talk about what it's actually doing to people. And every day the press releases would come out referring to how much money is being spent. Because the culture of referring to how much money we're spending is deeply, deeply embedded.

So, you know, I think your focus on the pandemic is really interesting. And I talk about this a lot, publicly. The reason the government was effective during the pandemic was because they didn't follow ordinary public service processes. They didn't follow ordinary governance processes. And I try not to be very critical of the public service because almost everyone I have ever worked with in the public service is hardworking, is smart, is trying to do the right thing for the public, is thinking hard about these things, but I also believe that the system and structure in which they work is not very conducive to delivering positive outcomes or addressing big problems.

The system is a problem and so, during the pandemic, regardless of what you think about, like vaccine mandates or shutdowns or all of the CERB stuff or all of the benefits, and you can critique too much, too little, too whatever, but they were able to do it. And they were able to do it very effectively and they were able to adjust. I'm sure you remember and I'm sure people remember early on, in terms of like wage subsidy, the finance minister went out with a proposal and like two days later they changed the proposal because it wasn't enough. It clearly wasn't enough.

Nate: Yeah, we had caucus calls every day and where we were feeding information from the ground up into ministers' offices and it was a very frenetic time for sure, but you felt like the input you were providing, the feedback you were providing was being sort of collected across the country and then acted on.

Matthew: Correct, because you were trying to solve a problem. And the, the, the government, the political leadership, but more importantly, the public service said, Yeah, we've got to throw away our processes. We're not doing a six month cabinet process, and then a one year Treasury Board submission, where every line of the 300 page Treasury Board submission is dissected by three policy analysts and goes back to the Ministry and it takes like a month to go over one line and I'm not really exaggerating. There is a recognition that these processes were not effective for the challenge at the moment.

And like you can't govern like COVID all the time, obviously, but when you think about the things that made it successful, the ability to adjust, like oh, okay, this isn't working. Let's change it in a week. We don't have to do a new cabinet submission or change the legislation or get an exemption at Treasury Board. We found out it's not working. A week later, we change it. The ability for caucus and communities to engage. I mean, the strongest one of my strongest criticisms of how Ottawa works, and it's a cliché, is the Ottawa bubble. But you can be talking in a room about what's going on in a community and really believe that, yeah, the infrastructure project that we're funding for the community centre, yeah, that's going great. And then you go to Regina and the people there say, no, we're not building a community centre at all. We've still got 12 contribution agreements to sign and everything's terrible. So during pandemic, you were feeding in, in real time, to what's going on. You were willing to partner.

Government was much more willing to partner with not -for -profits in real time saying, at food banks and homeless shelters and community centres, okay, let's sign something quickly and you're delivering benefits. So there were so many, and horizontal, and this connects to your main point, that people knew what they were trying to achieve. Having a really clear goal. We need to keep people's income at a certain level so they can pay the bills. And that could be Indigenous services, could be ISED, that could be Finance, that could be ESDC. All the ministries have had similar goals and those goals were clear from the centre.

Whereas, you know, in normal processes, you know, our Natural Resources Canada, Environment Canada could be disagreeing on something and they could be in working level meetings for a year, wordsmithing a deck, because they don't agree on what they're trying to achieve. And if you don't agree on what you're trying to achieve, a bunch of directors general working on a deck is not going to get you to an outcome.

And that was what we were trying to do in the federal public service with the results and delivery unit, which was to focus on a small number of issues, and really bring all ministries together who had a hand in it, say, can we achieve certain kinds of outcomes? And I would say that on some one -offs, like cannabis legalization and rollout, like that was very effectively delivered. People have criticisms, but that, I mean, I don't think the government gets enough credit for how quickly and effectively we did this enormous transformation that had a thousand policy issues that no one had thought of before.

Nate: If anything, the criticism that I would have on that front, and I would have a few obviously on the rollout, as more of a cannabis consumer than most of my colleagues, my criticism actually is second level, which is the review and the ability to act on challenges in the system, has been an utter disaster. Whereas the initial rollout, to your point, was efficient. And it didn't get everything right initially, but it was incredibly efficient, it was timely, got the thing done, and then let's figure out what went wrong and let's act on it, but then that second order step didn't take place in an effective or efficient way.

Matthew: Because I remember going to those meetings every week with Health Canada, Public Safety, ICED, Indigenous Services, Intergovernmental. I mean, there were huge issues that were unanticipated because we're focused on it. Much like the pandemic, everyone was in the same room, political staff and civil servants trying to solve problems and achieve common goals. And that just doesn't usually take place and then everyone goes away and it, you know, entropies into, you know, the ordinary system and the ordinary process.

And yeah, I think if we wanted to do better, we could, but it requires lots of work to, like you think about all the processes, procurement, digital services, IT, access to information, HR, performance management, translation services, all these systems that are the responsibility of the public service, not the politicians that the public service has built, are not very good. And it takes enormous effort to fix it.

And I understand why if you're the head of the Treasury Board or the head of the Clerk of the Privy Council, you've got a hundred more important things to do. But the leadership of the public service has to choose that they are going to devote time and effort to fixing the processes that aren't working very well.

Nate: It's interesting the issues that the civil service is solely responsible for. could be a liberal government, it could be a conservative government. Both governments have presided over procurement problems. Both governments have presided over, Phoenix as an example, they both presided over the disaster of Phoenix in different ways. And there's no politics to this, there's no partisan politics to this. There's no minister that's going, we, we created this and this was part of our policy agenda. No, this is a civil service driven initiative and has been a tire fire. When you were first appointed, there was criticism from some quarters that it was too political, that you'd been involved, as you say, in writing the platform and this is not how the civil service is supposed to be run. I gotta tell you, from my perspective, the inability for the civil service to be as responsive as it needs to be to political considerations and to political challenges and political pressures, I think is a flaw as much as it is a feature.

And I don't want JD Vance to come in and fire all the mid -level civil servants, but I do think having some of your civil service, whether it's yourself, I've got a, BC actually has more of a political civil service than Ottawa does, having some understanding of the political pressures to ensure that the programs are going to be responsive to real needs, to make sure that they're responsive to adjusting as necessary, but also just to ensure that, we have to understand we operate in a political environment and these things are either benefits or liabilities, depending upon how we roll them out and we should maybe think about the politics as we go about delivering public programs.

Matthew: Yeah, I'd say at least three things. One, just because you have had some political engagement doesn't mean that you can't be a nonpartisan public servant. That to me is an obvious statement of fact that people go through different professional roles in their life. And we have lots of people right now who are former ministers and former politicians and former party people who are off working in the private sector or the not -for -profit sector who are their jobs in entirely non -partisan ways and that we can't imagine that that can happen is, you know, like it's a problem.

It's obviously possible to go from being a communications person in a minister's office to going to be a journalist and being a fair and impartial and nonpartisan journalist, like you can do both things. Second, I always did find there was a little bit of hypocrisy in the criticism of me as having some connection with the Liberals. I worked for three clerks while I was there. Two of them were former Conservative staffers.

So, I did find it a bit ironic that we seem to be okay with former Conservative staffers, members of the Conservative party who were deputy ministers and then clerks. And I did policy work for platform development. But I think you're right to highlight something that many people would not be aware of, which is that in Ottawa, the public service is very nonpartisan, it's very professional. I respect that enormously and I think that needs to be protected. But your point is accurate in that in most provinces there is more comfort with a little bit more fluidity and a little bit more cross -pollination and a little bit more dialogue across public service and in political government. And I think that serves, I think that serves government well, I think that serves the public well.

Nate: Yeah, I think so long as there's an understanding that these are tensions at which at either extreme it's a problem and you and you have to make sure that you find the appropriate balance. And I would point to the same tension as between centralization and efficiency because I I loathe excessive centralization. I actually undermines, at an extreme, efficiency because decisions get bottlenecked in the PMO and we've seen that I've seen that and I'm sure it's happened before my time.

And yet at the same time if you have truly inefficient ministers who are dropping the ball or their DMs or their departments are dropping the ball on a particular thing, you do need accountability and that accountability does have to come from PCO or PMO or someone at the centre and ostensibly the role that you were playing with with results, to say let's focus on results and let's maintain an accountability on results to these mandate letters. And there is, again, you don't want to be excessively centralized, but if you're too decentralized, you lack that accountability. And so you got to find some balance between those two tensions.

Matthew: I mean, I think over the last 10 years, there has been real progress on a lot of really important things for the country. And, you know, there's a lot more work to do, but I think progress around Indigenous issues, access to economic growth and wealth in Indigenous communities, self -government, infrastructure. There's been real progress there and I think it's, we don't talk enough in the media about the progress that's been made. I think we do a disservice to Indigenous communities.

But the tensions in government around Indigenous services, Crown Indigenous relations, ESDC, ISED, Fisheries, Finance. You can't make progress on big things without the PMO there to butt heads. You just can't.

And I find, you know, the critique about, this government's so centralized, well, it's the same critique that the same people have been making for 40 years about every government, with kind of no evidence. Like 40 years ago they were writing, oh that's gotten so centralized in Trudeau, it's gotten so centralized in Brian Mulroney. So I don't know what the evidence for that is, but if you do not have a strong Prime Minister's office and strong Privy Council office to ensure that progress is made, there will be working level meetings on big files forever.

Reflections on Achieving Effective Government Delivery

Nate: Can I use two examples? One's positive, one's frustrating, in my own office. And then it's the broader question of how you deliver smart government, competent government, and what lessons sort of you've learned. But you mentioned indigenous issues, and I actually think we've obviously broken the promise a couple different times around lifting all reserve, boil watery advisories on reserve. And that's a broken promise, and we should acknowledge that, and I think one builds trust when we acknowledge that we haven't set out entirely to do what we set out to do.

But I think simultaneously we should be articulating the results and to say it's not just about money spent, it's about the fact that 83% of advisories have been lifted. That there are 30 still remaining in 28 communities, 10% of the work's been, you know, 10%, so 80% lifted.

In a further 10%, the work's been done, but the lift is just pending. Then you've got 4% where the project to address the advisory is under construction, 2% the project to address the advisory is in the design phase, and only 1% where the feasibility study is still being conducted. And so there's been a massive amount of progress, and the results are actually, I think, critically important, and they're even better when you consider that the total long -term advisories that have been lifted are actually more than the long -term advisories that were even in place when we took office in 2015, and a ton of short -term advisories, well over 150 I think now, have been lifted to prevent them from becoming long -term. And so I can articulate results, and I think with that very clear task ahead of us, the mission was clear.

The parameters were clear and the money was there, away the government went, and again, imperfect success, but massive progress on a file that other governments had let just sit by the wayside and just fester and become just an embarrassment for our country. On the flip side, and this is very small and I see it in my office, is how we measure things really matters. So in that case, okay, we know what we're measuring, so we're successful, at least to a large degree.

Canada Summer Jobs, and you mentioned ESDC, the goal there is jobs, okay? So then you get these absolutely bizarre bean counting scenarios where two 8 -week jobs are more important to the civil service than one 16 -week job, even though on all other considerations, obviously one 16 -week job is better for the individual, better for the organization on training and consistency and everything else and a better relationship obviously will develop over that time. And it's not always the case, but almost always the case it will be. It is going to benefit the individual student better, or young person, better if they've got the 16 week gig. And so we've just bean counted wrong. And this happens all the time.

And so when you look at, I've run on smart, fair, honest government or competent, compassionate government with integrity. These are the three values that I think have to be in government at all times. I want smart representation, fair representation, honest representation. Those are the three things that matter to me. That's what I want. And on the question of competence, and this is trust, it goes back to this question of trust, but if you're gonna deliver competent government, it rests on the civil service being able to deliver things and counting, measuring the right things. And so, what is your, will you reflect on your experience there? You were there for four or so years, four four plus years.

What needs to change? What needs to happen? What's your advice? If you're sitting down with a room full of DMs today and they're saying, hey Matthew, how do we make sure we have smarter, more competent government? What needs to change? What's your advice?

Matthew: So I would say to the clerk and the secretary of the Treasury Board that this has to be a priority, that the culture, and more importantly the processes structures of decision making in the federal public service have to change and they're not going to change without leadership from the very top and it will take work.

And I get that, you know, there's a complex world out there, and no one really wants to dig in on this. I think that as you say, we are not very good at figuring out what to measure or how to count consistently. And this is art and science. It's a discipline.

Figuring out from my perspective, you start with what are we trying to achieve? What problem are we trying to solve? And I have been in so many processes where people start, but okay, what are we going to count and what measures are we going to? No no, first figure out what the problem is that you're trying to solve. And then you can develop more sophisticated and accurate measurement strategy. You need to know what you're going to do if you're not achieving those results.

And the boil water advisories is a great example, as you say, it did not hit the targets, but the public service responsible for this understood much better what was going on and developed much deeper relationships and communication with affected communities. And they kind of were given license to engage with communities.

And that is another thing that we've talked about, but that I would give strong advice to, which is,

in order to understand whether you're having a positive impact, you have to be engaged with the communities that are being affected. And the instinct in Ottawa is towards secrecy. We'll produce a document, we'll share it very confidentially, we'll put secret on the top, we'll have meetings to talk about, and we'll consult internally and we'll manage a process internally. And then at some point we'll come out, yes, maybe we'll have a discussion paper or something, but in general we will come out with the decision that we have arrived at mostly through secretive internal processes and dialogue. And that is not how you are going to get the most effective policies or programs.

And so my advice would be you have to be much more tolerant of risk, which has a whole bunch of problems with the media environment, but you have to be much capable and competent and prepared to engage with communities and engage with stakeholders. People talk about consultations all the time, but the ability to really go into communities and understand what's going on in those communities and talk to the people delivering programs, that doesn't happen. It doesn't happen nearly as much. And it's through that deep community level understanding that you develop an understanding of what to measure and how to count and what's most appropriate.

Because no person in employment services would say two 8 -week jobs is better than one 16 -week job. And it's only from a lack of engagement and showing what you're going to do and letting people challenge it and say, oh, okay, no, we'll change it. It's only through that process that you can get the right measures. And so that would be my advice, which is to be more open, transparent, engaging, go into communities, know what's going on.

Nate: Well, I appreciate that and embracing a culture of risk taking rather than risk aversion and encouraging a level of entrepreneurialism in the civil service. I'll leave you this. Tom McElroy is a constituent of mine. He's one of the co-inventors of the UV index. He used to be, he worked for Environment Canada. And he'll talk about in the 1980s, there was this real sense of, there's this willingness to be creative and to have a sense of public imagination.

And he will blame the Harper years, but he will point to that as it just sucked that level of creativity and public imagination and push people who wanted to think outside the box just out of the system entirely, such that he left and he, he finished his career as a professor at York.

But we need to restore that level of, yeah, we're not gonna succeed at everything, but we're gonna be much more nimble and try different things and we're going to be much more innovative in how we deliver for Canadians Because those are big themes, but it all comes back to trust. Whether it's wealth concentration, whether it is the ability to deliver for people on the things that they need as a civil service and as a government, but it all comes back to trust, which is central to maintaining our democracies. Matthew, thanks for the time. I've kept you longer than I promised you, so I appreciate your time. I appreciate all the work you've done and are doing, and I look forward to staying in touch.

Matthew: Thank you for having me, Nate.

Outro

Nate: Thanks for joining me on this episode of Uncommons. Thanks to Matthew for the time. I appreciate you sticking through over an hour of a wonky conversation, for sure.

I think it’s really interesting though, and it’s certainly work that I hope to continue as long as I’m in politics, is just to focus on this core question of wealth inequality. And I do think, as I said in the interview, I do think we miss the boat on the capital gains tax by not situating it in a broader context, in an international context, of how do we address excessive accumulation of wealth? And if we care about wealth inequality, and not everyone does, but if we do care about wealth inequality and the pernicious negative side effects that we see from excessive concentration of wealth, then we should care about different ways of tackling it. We should follow the evidence on the best ways to tackle this challenge. And as Matthew said, there are lots of different ways, lots of different policy solutions to approach that challenge.

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