The ONW Salon: Will The Working Class Lash Out In Canada Too?
Donald Trump has promised to bring back jobs for the working class in the U.S., many of whom feel they have been betrayed by years of wealth inequality. Inequality has been a major theme here in Canada too. What are the federal Liberals in Canada doing to equalize wealth in Canada, and is it enough to avoid a backlash by the besieged working classes that brought about Brexit, Trump and other election upsets like that in Italy? Richard Mahoney, Will Stewart and Tom Parkin debate.
We’ve seen a powerful backlash against elites in Britain, the United States, Greece, Spain, Italy, etc. But less so in Canada.
Perhaps it is because we were not exposed to such widespread economic lying and destruction as in those other countries. In the United States and Europe, citizens were repeatedly told that their financial system was sound and risk was being effectively self-managed. Then suddenly, banks began to teetered and collapsed – and the official story changed.
In the recession that followed, people lost their jobs, homes and savings. Financial institutions went from infallible to "too big to fail." Alan Greenspan became a fool and Keynesianism was back. Government went from something that should do as little as possible to the final bulwark against the collapse of capitalism.
To save the financial system, billions – perhaps trillions – in bad loans were transferred from private balance sheets to the public sector through the Troubled Assets Relief Program, nationalizations and other “bad banks.” Then, once debts were passed from those private balance sheets to public ones, everything changed back again. Policies switched from Keynesianism back to austerity. The people who’d lost jobs and homes now had their public services cut. But bankers got their bonuses again.
If populism is a radical distrust of elites, why shouldn’t these people be populist?
But that’s not the Canadian story. Canada never bailed out its banks and made citizens pay for it. And so the strength of anger against elites isn’t as strong. Yet we are in an emerging inequality crisis in Canada. Growth is anaemic. We are gushing out $18 billion a year in a trade deficit. Canada’s average wage has been stagnant since 2014 – it’s even fallen a bit this year. In the past 12 months, 30,000 full time jobs have disappeared and been replaced by part-time jobs. Young and working class Canadians are loaded down with debt – student loans, rent costs, transportation costs, etc.
Yes, there have been some changes to children’s benefits that are advantageous to lower-income families. But the problem isn’t the public sector, it’s in the private sector economy – the lack of private sector job creation, eroding job quality, growing personal debt, and so on.
Right-wing governments won’t support private sector workers with better minimum wage laws or employment standards. And, instead of adopting policies to address the problem, the Finance Minister tells young workers to get use to “job churn.”
So maybe Canadians do have a reason to be populist. I have some real worries that the Liberals will make the private sector jobs problem worse. The main (only?) economic strategies seem to be more trade deals and infrastructure development.
Nobel prize winning economist Joseph Stieglitz made some important point about each. First, he called the Trans-Pacific Partnership “the worst trade deal ever.” Second, in an essay last week, he raised concerns that rent-seeking behaviour – especially from the finance sector – is displacing growth in the real economy and wages. Yet the Liberals’ Infrastructure Bank is exactly a scheme to bring more rent-seeking into the economy. Asking everyone to pay higher user fees and tolls so private investors can get a good return hurts incomes, hurts consumption, hurts the economy.
If the Liberals will not develop a new framework of policies that will support private sector jobs (in fact, if they are going to accelerate the bad trend) Canadians may soon come to the same radical distrust of elites as we have seen in Americans and Europeans.
Tom points out many of the challenges facing Canada, and Canadians: slow growth over continued periods, and the disappearance of high paid manufacturing jobs in many communities that used to support families over lifetimes due to global competition and technological advancement. Inequality is a challenge in our society, even more so in other countries.
Tom also points to some of the factors that exist in Canadian society which have mitigated some of the disenfranchisement. Thanks to decisions Paul Martin and Jean Chretien made in the nineties, we did not allow deregulation in the financial services sector. As a result, we did not have to bail out our banks in 2009 because they were not allowed to do the insane things that we saw in other countries, destroying economies and forcing people out of their homes.
We also have decent public services and we redistribute income more fairly than our neighbours to the south, so there just isn’t the same degree of betrayal of working people that we saw by Wall Street and those who regulate it. So we have a more cohesive society.
But the challenges are still here, they are just less pronounced. We need to continue to invest in public services and make our economy fairer - that will help. We also need a plan to create private sector jobs for the middle class. That is why it was so important to elect a government that had a plan to try to do this, rather than the status quo and austerity plans offered by both the NDP and the Conservatives in the election last year.
One of the ways we can do that is by investing in infrastructure, which is why Tom is so wrong to dismiss the Liberal government’s idea of an Infrastructure Bank, which could massively increase investments in infrastructure - creating thousands of jobs immediately, and building assets for the long term that support employment and quality of life, such as huge increases in public transit.
I think that there will still be challenges faced by working Canadians and all Canadians. We live in a time of difficult change and so many are affected by this. But by responding with investment and a focus on improving the lives of the middle class, we can at least help people adjust to the challenges, and provide a society with the tools it needs to get through these very difficult times.
OK. So while it’s common to make jokes about Donald Trump, at the end of the day, I think we can agree that he represented a real dissatisfaction with the status quo. I think we've started to see some of that “populist grassroots activism” beginning to stir here in Canada.
To today’s question, an important takeaway for any incumbent government (not just those led by Justin Trudeau and Kathleen Wynne) is that they need to be mindful about the things that matter to ordinary people. Canadians are paying attention to what their (to borrow a word from the American election) “elites” are doing. And these populist activists are currently in no mood for politicians who play expensive games with their money.
To the extent that Trudeau spoke – even generally – about the middle class shows that he had his radar correctly aligned.
But I’d parse the question a little bit. Rather than speaking strictly about “wealth equalization”, I think Trudeau, Wynne and others might do well to focus even more on job creation.
There's an old Tory stump speech trope that "the best social program is a job". But in this case I think there's a lot to it. Relentless focus on job creation might help him to stay on the right side of this “restless” opinion. Yes, it’s a basic bread and butter issue, but it was consistently mentioned as a top issue during the last election, and still is.
I don’t think any reasonable person would dispute that investment in infrastructure is important. But two points: the model of investment matters and it is not enough. Justin Trudeau promised to use historically low interest rates to investment in infrastructure. Now, with his private Infrastructure Bank – the “flywheel of reinvestment” – he is jettisoning that promise and reaching for a private investor approach. When a government can borrow at 1.5% for 10 years and investors want 7%, this is simply a policy of rent-seeking – possibly in exchange for political support. The additional financing costs to curry favour with the Davos crowd will be paid by higher tolls and fees.
As an example of the cost, Canadian economist Toby Sanger has calculated that a $100 million infrastructure project, with public finance over a 30-year term, would cost $31 million to finance. With private finance over 30 years it is $160-plus million. That’s non-productive – in fact counter-productive because it will squeeze out productive, real economy investment - materials, wages, etc.
But infrastructure isn’t enough. We need to be value-adders and we need to more aggressively trade with the world. In particular, we need to get our number of patents and PhDs up. We need pipelines to turn Canadian knowledge into Canadian products. I am not claiming to know how to do that, but I do claim it is essential – and I see no movement on innovation from the Liberals.
Tom is wrong here. The PM has not jettisoned the planned and promised infrastructure investments from last year’s campaign. They are being made as promised. I note that the NDP opposed these investments and ran on a balanced budget plan.
The new Infrastructure Bank will bring additional billions of dollars from pension funds around the world into Canada, creating jobs here. That is in addition to the public funds the government borrows to invest. There will be times when government invests, and borrows directly. There will be times when the private sector does that and gets revenue from the asset built. And there will be times when the leverage of an Infrastructure Bank investment is the most sensible way to proceed, because it brings in additional investment.
So that is a plan to create private sector growth, which Tom says he wants the government to do. But it is only part of the plan.
I agree with Will - we have seen populist grassroots activism here. Rob Ford’s success came from there, at least in part. It also helped elect Justin Trudeau last year.
I also agree that it does come down to a relentless focus on job creation. Now that is easier said than done. There is no magic wand to wave that makes the private sector invest in jobs. Trump succeeded politically, but he has also created an expectation that he will get those manufacturing jobs “back.” That is unlikely to happen to say the least.
But whether here or in the U.S., there are many things government can do, and is doing - at least here. Massive public investments in infrastructure are a big part of this - that is one thing that governments can do to both create jobs and incent the private sector to create more. Investing in research and development and science is also part of what the feds are doing, and must do. Proceeding with a pipeline not only creates jobs but also enabled Trudeau to provide the leadership for a pan-Canadian deal on climate change, which we have to address.
All of this and more won't stop unrest from those who are suffering from this shift that is underway. We are in the middle of it and it is tough. But taking the steps outlined will help Canadians get through this, and help us maintain a strong society while we do it.
To wrap up, I have just a couple points I wanted to raise from earlier in this discussion.
To Tom’s earlier point about trade deals: in the current populist climate, it’s wishful thinking to bet the house that signing big trade deals will be meaningful to voters. Just ask Stephen Harper. The idea that the projected benefits of complicated trade deal will somehow filter down to the unemployed or underemployed person as “action” on jobs - that has never seemed liked thinner gruel. It won’t satisfy someone.
Secondly, to the debate between Tom and Richard about the merits of an Infrastructure Bank: When it comes to staying on the good side of middle class/working class voters, I have to fall more to Tom’s side on this one. These are precisely the kind of big government “solutions” that all too often backfire. We’ve seen this movie before: runaway spending and questionable value. And to average families who don’t work on Bay Street, but who work hard, pay their taxes, and ask very little of government, they’re left trying to figure out how it could possibly help them.
Finally I’ll just add that while in the CPC leadership race much is being said about Kellie Leitch speaking to these disaffected, besieged voters, I would argue that they exist in other parties, too.
Time will tell how cohesive these views are, how durable they are, and how easily they can be satisfied. But if I were an elected politician in December 2016, I’d spend my time trying to speak honestly and authentically to ordinary voters. To spend wisely, to treat tax money with respect, and to remember that politicians work for the people, not the other way around.
Richard Mahoney is a lawyer with deep experience in politics and governance. He is a former senior advisor to the Rt. Hon Paul Martin, a former Campaign Chair and President of the Ontario Liberal Party. Will Stewart is Managing Principal at Navigator, served as Chief of Staff to several Ontario Ministers and often appears as a national affairs commentator. Tom Parkin is a veteran NDP strategist, columnist and a frequent commentator on national issues.