Should Canadians be worried about Mr. Flaherty?

There is currently much uncertainty about future developments in the global economy. Most thoughtful economists are predicting low growth in the European and U.S. economies. As well, it seems that even those economies with some juice, the economies we hoped would lift the fortunes of the rest — Brazil, Russia, India and China — are now slowing to such an extent that they could inhibit any immediate recovery. As the global economy goes, so goes the Canadian economy. We have, of course, been counting on continued growth in our exports of oil and minerals to keep our economy growing. However, this is unlikely to happen in an era of stagnation.

Back in March 2009 we argued (“The Tory Budget; Business as Usual”) that one of the causes of the economic crisis in 2008 was the growth in income inequality in most economies since the rise of neoliberalism in the early 1980s. While this growth in inequality was pervasive throughout the global economy, it was especially pronounced in the U.S. and the U.K. Moreover, it was evident by 2008 that a massive shift in income from the bottom to the top was underway in Canada. We also argued that so long as this trend continued prospects for a sustained recovery were bleak. We weren’t the first to make these arguments. And we wouldn’t be the last.

Finance Minister Jim Flaherty ignored all studies that documented and explained the consequences of growing inequality in Canada. During the first half of 2011 he committed during the election campaign to further cuts in corporation taxes and cuts in government expenditures. He also talked about flattening the income tax structure to create more incentive to work.

In the latter part of 2011 both the Conference Board of Canada and the OECD produced studies confirming growing inequality and calling for tax measures (as in tax increases) and other actions to reverse the trend in Canada. Flaherty, rejected these findings. He insisted that his fiscal regimen — fixed date for balanced budget, cuts to government expenditures, and reductions in corporation taxes — would ensure a smooth transition to growth. And he was supportive of austerity measure in Britain and Ireland aimed at reducing deficits and debts, although his support waned when these policies resulted in double-dip recessions and rising unemployment. Currently, the unemployment rates in the United Kingdom and Ireland are at approximately eight and 15 per cent, respectively.

More recently, The Globe and Mail published two reports by James Currie on Flaherty’s summer policy retreats at Wakefield, Quebec where he goes to seek inspiration, insight and policy guidance as he looks for the appropriate mix of policies to deal with economic problems. The initial report, “Finance Canada unveils invite list for economy retreat” gives the names, positions and employers of the 22 people invited to this years conference. According to Flaherty, “we do ensure that there are representatives from all walks of Canadian life there, including from the academic community, economists … Lots of CEOS because we need private action. … We also invite some other people … from some of the non-profit organizations and from organized labour.” The list does indeed include lots of CEOS and other senior management people — 18 of the 22.

The other four are: Robert Blakely, director of Canadian affairs, building and construction trades department, AFL-CIO; L. Ian MacDonald, outgoing editor, policy options; Paul Romer, professor of economics, Leonard N. Stern School of Business; and William Watson, associate professor and chairman, economics department, McGill University. I would say that there is not a lot of diversity here. Indeed, with 18 of the 22 people in the same or similar positions, you’re likely to get a monolithic perspective, especially, when the topic of discussion relates to government policies on trade, taxes, government spending and labour.

According to James Currie’s second report (“Backroom Confidential: What CEOs Are Asking Of Jim Flaherty”) private sector participants at the 2011 Wakefield Conference were preoccupied with labour issues. A summary memo obtained by The Globe states that “the minister was urged to adopt measures to reduce the pay of Canadian workers, limit union power by enacting U.S.-style right-to-work.legislation and allow two-tier health care.” as well, some private delegates called on the Minister to: “Reduce public service wages (not in higher ranks, but those in the lower ranks such as administrative and clerical staff as they earn more than their private-sector counterparts) and reduce the overall size of the public service.”

Clearly, many of the ideas brought forward at last year’s conference, while they are more likely to make matters worse rather than better, are compatible with the current agenda of the Conservative government and Mr. Flaherty. They have decided that wages are too high in Canada and their policies are designed to bring them down (wages of unionized and non-unionized workers alike, but not CEOs). This is a strategy that will have grave consequences for the Canadian economy. Mr. Flaherty and his colleagues in the Conservative government refuse to admit that cutting taxes for corporations and the wealthy and cutting expenditures that benefit the general population will exacerbate income inequality. By taking purchasing power away from the middle class, Flaherty is condemning the economy to slower growth.

Currie’s article concludes with a reference to Andrew Jackson, chief economist for the Canadian Labour Congress. Jackson, who attended the 2009 retreat, said “the participants tend to represent a one-sided view. “They’re overwhelmingly dominated by employer spokespeople — people from the right-wing think tanks. It is a point in the process where the minister is starting to frame key ideas for the next budget so it is an important opportunity to shape his thinking at a pivotal point in the process.’”

I must admit I have been worried about Mr. Flaherty ever since he turned his back on various organizations that have raised concerns about the inequality of income in Canada and the ways in which it adversely affects our economic prospects. I am even more concerned now by this information from the Wakefield Conference which reveals that Flaherty is getting advice at his private conferences that would further accentuate income inequality and undermine the prospects for dealing with the serious problems we face in Canada.

ERROL BLACK

Brandon

Republished from the Brandon Sun print edition September 15, 2012