Daniel Tseghay and David Penner: Rising income inequality driven by corporate Canada
By Daniel Tseghay and David Penner
“So distribution should undo excess, and each man have enough,” wrote Shakespeare in King Lear. Of course, this should be read as an aspiration, rather than as a catalog of our current condition, especially in Canada today.
Between 1980 and 2010, according to Statistics Canada, the pre-tax median income of the bottom 20 percent of earners dropped by about 20 percent. During the same period, the top 20 percent’s median incomes rose. The result was an overall increase of 19.4 percent in pre-tax inequality, according to a study by the Centre for the Study of Living Standards, an Ottawa-based think tank. Even after taxes and the distribution of benefits, the rate of inequality still rose during the period, only at a lower rate of 13.5 percent. Furthermore, the study ranks British Columbia the most unequal province.
A report released last year by the Organization for Economic Co-operation and Development noticed the same trends. Canada’s income inequality has increased faster than all except five of the 34 OECD countries, nearly doubling the rate of the notoriously unequal United States.
So it’s time to ask ourselves why this is happening—what exactly is driving the ear-popping rise in inequality? “When it comes to identifying contributors to worsening income inequality in Canada,” a new report published by the Canadian Centre for Policy Alternatives says, “look at the corporate power and consider it tantamount to a smoking gun.”
Released earlier this month, A Shrinking Universe: How Concentrated Corporate Power is Shaping Income Inequality in Canada, written by Jordan Brennan, might give us some sense of how we’ve gotten here.
It turns out that the top 60 Canadian-based firms make up 67 percent of all equity market capitalization and 60 percent of all corporate profit, and, given that “the entire Canadian political economy is driven by the performance of the equity market”, these firms are powerful. “Many important decisions made in the Canadian political economy are conditioned by their performance and their values,” the report clarifies. These include “decisions by businesses about whether to build new factories or expand the workforce; decisions by the Bank of Canada about interest rates and the money supply; decisions by commercial banks about acquisitions and lending; and decisions by governments about bailouts and stimulus,” and so on.
The problem for many Canadians lies in the fact that these firms—within which we’ll find many of the super rich—have little incentive to close the inequality gap, raise wages, and reduce unemployment. “[C]ontrary to the received wisdom,” the report asserts “a move towards full employment and unlimited industrial production will not be welcomed by business because it undermines the pricing power of large firms and leads to a reduction in the capital income share.” In the battle between workers and Canada’s largest firms, the report argues that the latter gain when the former lose.
Even the man many consider the father of unfettered, free market capitalism, Adam Smith, might have agreed that Canada’s largest firms have undue influence. “The proposal of any new law or regulation of commerce which comes from this order,” he cautioned in the Wealth of Nations “ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.” Their interests, he believed, are “never exactly the same with that of the public…and…have, upon many occasions, both deceived and oppressed it.”
Daniel Tseghay is seeking the nomination to become the B.C. Green candidate for Vancouver-False Creek.
David Penner is a law student at UBC.