The Harper Government and Republican Economics

The Harper Conservatives model their economic policies on beliefs held dear by American Republicans: just lower taxes, and reduce government, and business will create the wealth.

With this approach, not only is income becoming less equal as the OECD just noted, Canadians and Americans are not becoming wealthier. The "give business a tax break" and the "let the invisible hand of the market do the rest" policies are not improving life for Canadians or Americans.

As creation of real full-time jobs dries up, and precarious employment increases, more Canadians and Americans drop out of the fabled middle class each year. The loss of well-paying manufacturing jobs has seen to that, along with union busting, and attacks on minimum wages, and unemployment insurance.

The increase in the percentage of women in the paid labour force since 1980 has been the means by which some Canadian and American families have held on to a standard of living that used to guaranteed by one unionized manufacturing wage.

The major corporations who dominate the world economy have been shifting production off-shore for three decades, replacing relatively well-paid employees in the U.S., and Canada with low-paid employees in Asia, and other low-wage jurisdictions. Low wages once meant off-shore incomes insufficient to absorb offshore production, leading to sluggish business conditions. But lower cost goods were welcomed in North America where chronic high unemployment, and low wages reduced family purchasing power.

The change is that the U.S.-based corporations that dominate both the Canadian and the American economies now focus on sales growth in Asian consumer markets. The idea that goods produced abroad in low-wage markets would have to be sold in North American or European markets has been dead for some time. Corporations are making new profits as a result.

The industrial corporations getting Conservative tax breaks in Canada are not producing here, or even focusing on serving a Canadian market they see shrinking.

In the last decade the industrial policies developed by China, and India, in particular are leading to the emergence of a new middle class in those countries. When one person in one thousand joins the consuming class, in those two countries, they replace the equivalent of 2.5 million people losing their middle-class status in the U.S. and Canada.

China has a population of 1.3 billion, India has a population of 1.2 billion. Over a number of years, a one per cent overall increase in workers from each country moving into the middle class, adds 25 million new customers for the major corporations that dominate world trade and investment. Compare that with the about 150 million Americans in the labour force.

For China and India alone, a combined one per cent increase in the number of middle class consumers is a higher number of people than the official populations of the 10 largest cities in the U.S. combined. Current estimates suggest that India could go from having five per cent of its population as middle class to 40 per cent in two decades. It is suggested China could reach 40 per cent by 2025.

AS U.S. and Canadian families lose ground, household debt is increasing in both countries. The capacity to earn income is growing slower than consumer debt, in part because of excess costs of credit card debt, and in part because of negative wage growth.

Families go into debt to make ends meet, and then watch debt grow. The only thing worse is not being able to make ends meet, which is the case for about one-third of Americans, and about 25 per cent of Canadians, the poor and the near poor. And of course, the poor or near-poor Americans have no health care, except for the over-65 age group.

There is an obvious need for re-distribution of income through spending to reduce poverty and inequality. What is less well understood is the need for a new relationship between government and business.

It is wrong to assume as does the Republican model that business can be left unattended to create wealth in the U.S. or Canada.

There is a role for active government in creating wealth, working with trade unions and using knowledge invested in the workforce, and local resources to create new relationships between employers and communities.

Setting out performance criteria for business, taxing business income, and re-investing in businesses that create wealth in Canada is the way to go. Of course to get there is going to require a change in government, and a new approach by the next Canadian government. The American Republican growth model hold out little hope for a better future in Canada.