RE: Income as a determinant of Canadians' health...

http://www.nationalpost.com/search/story.html?f=/stories/20010108/428203.ht
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January 8, 2001
Financial Post

Can Martin handle recession?

By Murray Dobbin

Paul Martin has had a relatively easy ride as finance minister, but his
peaceful sleep may well end if a recession does hit the United States.
Despite his sanguine reassurances about Canada's economy, we are certain
to be in trouble if the U.S. economy takes a dive. The government can't
have it both ways: They can't claim exports drive our prosperity and
then pretend the economy to which we send 86% of them doesn't determine
our future.

Since the signing of the free trade agreement Canada has undergone the
most profound "structural adjustment" since the Keynesian post-war
economic boom. For over ten years we have been restructuring Canada's
economy on the basis of a single-minded pre-occupation with making us
"internationally competitive." Prosperity, we are told, rests on a
continuous increase in trade. In effect, international trade and
investment promotion has been our principal industrial strategy.

Mr. Martin has a big problem if it fails to deliver. In order to become
internationally competitive, the federal government has savaged the
domestic economy and the standard of living of most Canadians. They have
been sacrificed on the altar of trade uber alles. Examine the federal
government's policy initiatives of the past 10 to 15 years and you will
have trouble finding a single important policy designed to strengthen
the domestic economy. If the United States goes into recession, we will
find that the robust domestic economy that historically provided a
cushion against falling exports has been severely eroded.

A key part of making Canada competitive was a whole range of actions
aimed at "labour flexibility" -- a euphemism for reducing the power of
workers vis à vis capital. The 1970s, with their resurgent labour
movement and rising expectations, made an indelible impression on
corporate leaders. Reducing labour power was subsequently accomplished
by two decades of downward pressure on wages and job-restructuring in
the private sector, and vicious cuts to government programs that
provided the security of a social wage.

But while this strategy accomplished its corporate goals -- 20 years of
wage stagnation and less militant unions -- it also weakened domestic
demand. That demand now rests precariously on the highest personal debt
in the country's history and a savings rate near zero. Any sign of a
downturn here means people will stop spending.

We have also eroded the automatic stabilizers that helped us through
past downturns -- social programs such as welfare and unemployment
insurance that kicked in with income support just when families and
communities were feeling the pinch.

In the 1970s minimum wages in every province but one provided the
working poor with a living standard above the poverty line. Today not a
single province can boast such a level, and the federal minimum wage is
equal to half the poverty rate. And it is adults and families who
suffer, not the mythical teenager living at home -- 61% of minimum wage
earners are adults.

Ottawa's abandonment of the Canada Assistance Plan, which provided
national standards for social assistance, has led not just to unequal
programs but to declining benefits everywhere. Most U.S. states now
provide more generous welfare benefits than even the most generous
provinces.

The same is now also true of Canada's unemployment insurance scheme,
which provides (much reduced) benefits to fewer than 40% of those who
pay into it. Our system is now more parsimonious than the American
program.

The final assault was Paul Martin's tax cuts themselves -- and the
casual breaking of his promise to distribute the budget surplus on a
50-50 basis. It is true that tax cuts can provide stimulus to the
economy, but these are a poor example. According to the Canadian Centre
for Policy Alternatives, Mr. Martin's tax reforms see 77% of the tax cut
benefits going to those earning over $65,000 and just 4% going to those
earning less than $30,000. The bottom 5% of income earners will get an
extra $8 a year to spend.

If you want tax cuts to stimulate spending, you give them to those who
will spend every dime. But this scheme was no accident -- the stimulus
is supposed to come from high income people investing, not low income
people spending. But just who will invest in an economy in a downturn?

If tax cuts are an iffy proposition, increased government spending is
not. Every dollar spent, whether on wages and salaries, infrastructure,
income transfers or purchases from the private sector, goes directly
into the economy. But instead of 50% of the surplus being spent, Mr.
Martin has allocated just 27%.

The policy shifts of the past 15 years will exact a high price when --
not if -- Canada's economy experiences its next recession. Maybe we will
be lucky this time and the U.S. economy will only slow down. That would
give us a chance to rethink policies -- on the minimum wage, welfare, UI
and tax reform -- that could make a big difference in how we ride out
the storm when it does come.

Our Web Sites have information and reports from all of our Quality of Life
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In the early hours I read in the paper of epoch-making projects
On the part of pope and sovereigns, bankers and oil barons.
With my other eye I watch
The pot with the water for my tea
The way it clouds and starts to bubble and clears again
And overflowing the pot quenches the fire.

 -- Bertolt Brecht
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Dennis Raphael, Ph.D.
Associate Professor
Department of Public Health Sciences
Graduate Department of Community Health
University of Toronto
McMurrich Building, Room 308
Toronto, Ontario, CANADA M5S 1A8
voice: (416) 978-7567
fax: (416) 978-2087
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