Neo-con policies drive financial inequality

For at least three Conservative MPs, anything that smacks of creating greater financial equality should either be "smashed," is "far-left economic thinking" or "dirty bathwater."

Here's former Conservative cabinet minister Monte Solberg writing in his blog recently: "For 40 years 'progressives' called the shots in Canada and their influence affected and infected everything... Anyway, that whole way of thinking must be smashed and (Finance Minister Jim) Flaherty has made a start on it but only a start."

Last Thursday, two more Conservatives chimed in. During debate on Liberal MP Scott Brison's motion to conduct a year-long investigation of growing inequality in Canada, St. Boniface Conservative MP Shelly Glover, Flaherty's parliamentary secretary, attacked the Liberal party's "embrace of far-left economic thinking" while Alberta Conservative MP Jim Hillyer likened Brison's motion to "dirty bathwater."

All three might want to examine a new report on Canada's income inequality in the June issue of the journal Canadian Public Policy. It was authored by five economists from the University of British Columbia.

Its most important revelation is a graph charting the share of total income earned by the richest one per cent of Canadians from 1920 to 2010. Not surprisingly, the most unequal decade over the past 90 years was the 1930s. During the Great Depression, almost 18 per cent of total income was concentrated in the hands of the wealthiest one per cent of Canadians.

With the onset of the Second World War, the one per cent's share plunged sharply. By the mid-1940s, their portion of total income was cut almost in half to 10 per cent. And it kept falling, reaching eight per cent -- its lowest level -- in 1979-80.

The year 1979-80 was a political watershed for the Anglo-Saxon democracies. Margaret Thatcher became prime minister of Britain and Ronald Reagan won the U.S. presidency. What the Trilateral Commission labelled "an excess of democracy in the western world" in 1975 came to an abrupt end and the neo-conservatism era began. It not only endures but strengthens to this day.

Inequality in Canada and in the other Anglo-Saxon democracies began to rise steeply. By 2005, almost 14 per cent of total income was concentrated in the hands of the wealthiest one per cent of Canadians.

Journalist and author Linda McQuaig says virtually all the income gains of the past 30 years have gone to the top-earning Canadians. The top one per cent have virtually doubled their share of national income.

The top 0.01 per cent of Canadians quintupled their share of national income over that same 30-year period. This very top income group -- roughly one in 10,000 Canadians -- now has the largest share of national income in Canadian history.

At the same time the very richest Canadians were making huge income gains, their taxes dropped significantly. Effective tax rates paid by Canada's top 0.01 per cent fell by roughly 25 per cent over the past 30 years, Statistics Canada figures show.

Meanwhile, there has been virtually no growth in the incomes of everyone else once inflation is factored out. In 1978, the median Canadian family income was about $48,800 in today's dollars. By 2008, it had fallen to $46,700.

There is no doubt earnings inequality has risen in Canada in the last three decades, a draft of the forthcoming Canadian Public Policy paper states. Inequality rises sharply during recessions because it's low earners who bear the brunt of bad economic times.

Another factor in Canada's growing inequality is the erosion of Canada's social safety net -- government income transfers designed to moderate market extremes by increasing disposable income. But governments cut taxes and transfers in the 1990s and inequality in disposable income started tracking inequality in earnings. In the 2000s, earnings inequality fell but disposable income inequality rose.

Even those who care less about inequality may still have an interest in curbing its increase, the draft paper states.

"While growth-oriented economic policies such as encouraging trade and deepening investment in new technology may provide the basis for economic success... these policies may also have the effect of exacerbating inequality. If economic gains from growth continue to accrue in a lopsided fashion, public support for pro-growth policies is likely to wane... In the same way in contemporary Canada, even those who don't care much for inequality itself may want to ensure that economic growth benefits everyone."

The five economists propose a number of solutions including raising taxes on the rich, increasing transfers to the poor and curbing inequality before it starts by changing the minimum wage structure, removing obstacles to unionization and lowering Canada's high school drop-out rate.

But these are bright red flags to Conservatives, especially Solberg, Glover and Hillyer.

Frances Russell is a Winnipeg author and political commentator.

Republished from the Winnipeg Free Press print edition June 13, 2012 A10