How Canada can share its prosperity
A major issue in the last federal election was affordability, how government can make life more affordable for Canadians. Yet no political party, not even the left-leaning NDP, questioned the great inequality of income in our society which contributes to this problem of affordability.
Instead, they focused on various forms of government aid and tax cuts, which at best can only partially compensate for the negative consequences of this inequality. Perhaps if Canadians were more aware of just how unequal and unfair our economy is, they would more demand its reform. In this regard, Statistics Canada has collected a set of data on income inequality from 1976 to 2011.
In 2011 the top fifth of income recipients received 52 per cent of all market income, up from 45 per cent in 1976, while the bottom fifth gained only 2 per cent. The second lowest fifth and the middle fifth both actually lost income over this period, taking into account inflation, whereas the top fifth increased their income by 29 per cent.
It’s true that after the 2008-09 recession this tendency to greater inequality stopped, but it has not since been reversed. What has underlain this tendency to inequality since 1976 is an unfair distribution of the fruits of greater productivity over this period.
Specifically, while labour productivity has increased by 66 per cent from 1976 to 2018, manufacturing wages, for example, have not increased at all over this period, taking into account inflation; all figures from Statistics Canada. By contrast, corporation profits have gone up by175 per cent, while incomes of highest paid chief executives have shot up from 20 times the average worker’s income to nearly 200 times, according to the Canadian Centre for Policy Alternatives.
The most obvious harm of this great inequality of income is the gross misappropriation of economic resources for satisfying people’s needs and supporting their well being. Further, more socially, there is compelling cross national evidence, presented by Richard Wilkinson and Kate Pickett in their book, “The Spirit Level” that the more economically unequal a society is, the higher its rate of health and social problems, such as drug and alcohol addiction, mental illness, obesity, teenage births, homicides and imprisonment rates.
Notwithstanding such harms, many economists believe that the increasing inequality in developed societies, such as ours, is due primarily to forces of technological change and globalization about which we can do little. They argue that when these countries’ workers are replaced by machines or lower paid foreign workers, this reduces the demand for domestic labour and therefore their wages.
However, contrary to this view, what if, instead, developed country workers were to demand and receive their company’s savings due to automation and globalization, so increasing these workers’ wages and therefore their demand for consumer goods and so the labour necessary to produce these goods, thus countering domestic job cuts?
Clearly the key factor here is the workers’ bargaining power in relation to their company. Supporting this view, unionized workers’ median wages in Canada were in fact 37 per cent higher in 2018 than the wages of non-unionized workers, according to Statistics Canada.
But the problem here is that the rate of unionization in Canada has declined to the point where only 16 per cent of private sector workers are now unionized. So what is needed is a change of economic relations between labour and capital, which will enable all workers to fairly obtain the fruits of their increasing productivity over time.
The most logical solution to this problem is a development of the German system of co-determination, in which company employees and shareholders each elect an equal number of company directors, who in turn choose a mutually acceptable chairman, thus giving workers equal power with shareholders.
Not only would such a board more fairly determine the overall distribution of company revenues between shareholders, senior executives and regular workers, it would also make other decisions impacting workers’ lives, such as investments and job changes, with more consideration for their interests.
By retaining the advantages of a freemarket economy, but basing it on a truly equal partnership between labour and capital, Canada can achieve a fairer and more democratic economy and society, which would be a key basis for shared prosperity.