A New Deal for a Precarious Economy

What do you say we start this discussion with some facts?

I know, I know, that’s not the way we do things anymore. Economics is common sense after all. Wage hikes cause unemployment. Unions are job killers. Companies are job creators. Tax breaks for the few trickle down to the many as wages. Inequality works, or rather it makes people work harder.

It’s a narrative that has informed our economic polices for the past 25 years. Unfortunately for its proselytizers, the facts tell a different story.

Good jobs lost in Ontario since the Recession hit

Canada has the 3^rd highest rate of working-age poverty amongst 17 developed countries. Inequality is at levels not seen since the 1920s. We have a moribund manufacturing sector that may or may not rebound with our petro-dollar now brought low. Companies get a ‘fail’ from the Conference Board of Canada on innovation. We have the lowest corporate tax rate in the G7 and one of the highest levels of precarious work. Roughly 40% of the population is a couple of paycheques away from bankruptcy. Household debt is growing (now at 162.6% of disposable income), as the middle class tries to keep its head above water. Workers whose paycheques are shorter than the month are relying on food banks and publicly funded services to get by. Essential government programs such as health care are cracking as tax revenue falls.

Does that sound like a healthy economy to you? No, it doesn’t. What we need is a new way of doing business. What we need is a New Deal.

To guide us, we have the experience of the New Deal that helped lift economies out of the Great Depression. And we have the expertise of economists on both the left and the right, among whom a consensus is emerging.

On the revenue side, the CD Howe Institute suggests restructuring the tax system by adding at least two new tax brackets for upper income earners to be taxed at higher rates. Remember, the top income bracket in the 1950s and ‘60s—the Golden Age of Capitalism—was taxed at 90% in the US and over 80% in CA.

While we’re at it, let’s get rid of the morass of boutique tax credits that have grown like weeds in the past several years. Even the Fraser Institute says they’re expensive, inefficient and return too little to the wrong pockets. What we need is not more for middle class people. What we need is more people in the middle class.

Bill Gates and others want to see a minuscule tax on financial transactions (.01-.1% on stock and money market trades). In Canada, that would raise enough revenue to slay the deficit and erase the debt.

Raise corporate taxes. They were cut by the Liberals in the late 1990s and cut some more by the Conservatives. There is room for gradual, incremental increases, taking care to measure their effect on employment and the economy.

Now for the expenditure side. The trick, as the UN recommends in its Innocenti Report Card for 2014 and as Scandinavian countries are doing, is to use revenues to increase the participation of all income groups in the economic life of the nation. Governments that are successful at reducing inequality fund an inter-related suite of programs that provide some universal services (such as education, health and child care), and some programs that target low income groups (housing and training, for example).

Finally, how do we re-new our economy? Where should government be deploying its legislative levers to foster a sustainable economy that provides enough tax revenue to balance the budget and to pay for essential services?

Unfetter unions. In Canada and the US, government legislation and corporate strike breaking have reduced their membership. A 2011 Harvard study attributes roughly 25% of today’s inequality to the loss of union jobs. Remember, the first New Deal set unions free to bargain collectively. Private sector union membership was at its highest during the 1950s and ‘60s.

Peace & Justice Grey Bruce have released a thoroughly researched paper on the economic damage precarious work does and what municipalities can do about it.

Legislate a living wage. Forget minimum wage. That’s just trapping people below the poverty line and in the line-up for public services. For governments, a living wage will relieve the stress on community resources and the public purse. For citizens, it will enable more people to participate in the social and economic life of their communities. New Westminster BC has done it. And Seattle WA has even legislated the private sector to follow its lead of paying workers at least $15 an hour.

For business, higher wages mean better employees. That’s why Aetna Insurance in the US has raised its lowest wage to $16 an hour. The company reckons it will save about $100 million a year by reducing its employee turn-over costs and fostering a well-trained and loyal work force.

Stimulate. Recovering economies do not respond well to austerity. In fact, austerity measures imposed on Greece have made the situation worse. Even the International Monetary Fund is saying, with interest rates so low, now might be a good time for more infrastructure spending.

Diversify. You hear that so often it’s almost an article of faith, like common sense. But in this case, it’s also true. Putting all your eggs in one basket is never a good idea. You might trip and fall, as oil prices are doing now. Canada’s dollar was high on hydrocarbons for years; now it’s not. Maybe manufacturing will return; maybe not.

Encourage innovation. Engineering, re-engineering, architecture, information technology, pharmacy and the arts are all industries that don’t need cities. Richard Florida’s Creative Economy is on the right track, as long as creators turn their innovations into products; or if they can’t, turn them over to those who can.

We can no longer afford to be just hewers of oil and drawers of liquid gas, or to rely on the US economy to create jobs, or wait for their policies to determine ours. We have to start thinking, and working, for ourselves.

© David McLaren January 2015

This essay appeared in the Forum section of Sunmedia’s Ontario papers January 31 or February 2, 2015.