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Katherine Scott: Income, Opportunity and Power

In 2008, the collapse of financial markets around the world tipped country after country into recession. Canada was no exception. In a short eight month period, hundreds of thousands of Canadians lost their jobs and the Employment Insurance and Social Assistance rolls started to climb. The proportion of part-time and temporary jobs increased as full-time employment disappeared. Canadians had to stretch their dollars further to pay for rising food costs and shelter, many turning to food banks – and credit cards – to make ends meet.

Before the recession hit, some economists were arguing that the days of boom and bust were over, that we had learned how to manage the business cycle as evidenced by over a decade of positive economic growth and rising average incomes. But the warning signs were there. Average incomes were rising – yes – but the very large increases of the top 1% earners were driving the trend. Income inequality was increasing steadily in Canada as the gap between those at the top and those down the income ladder widened.

Three years out and the economic recovery remains modest. Recent gains in real per capita Gross Domestic Product (GDP) and employment have been offset by the rise in self-employment and other forms of precarious employment. Unemployment has edged down, but the rate of employment is still below pre-recession levels and long-term unemployment continues to rise.

This give and take in the economic data reveals that the recovery has yet to firmly take hold in many sectors of the economy – and too many Canadians are being left behind.

The 2008-09 recession should have been a wakeup call but is anyone listening? In 2012, Canada is still moving in the wrong direction, income inequality is still rising.

“Towards a More Equal Canada”

The Broadbent Institute has taken up the challenge to shine a spotlight on inequality. Its new paper, “Towards a More Equal Canada”, paints the statistical picture of inequality in Canada and summarizes the growing body of evidence linking high levels of inequality and poor individual and community outcomes across a range of measures. It documents the damaging impact of inequality on our country’s sense of shared purpose, our democratic institutions, and our future economic prosperity and environmental sustainability.

“Towards a More Equal Canada” makes the case that the polarization of opportunity and outcomes today is setting the course for generations to come and invites Canadians to reflect on available options to achieve a more just, equal and democratic Canada.

In the past, faced with the devastating impact of the Great Depression in the 1930s, Canada rose to the challenge and built a host of new social institutions in education and health care, and new forms of social protection against the risks associated with unemployment, illness and old age. The challenge today is to identify a new set of policy and program strategies that arrest the pernicious rise of inequality.

Success lies in an intelligent redesign of public programs and institutions to reduce income inequality and foster redistribution. But, predictably, there are competing views on where the emphasis should be placed.

Redistribution of Income

Tax reform figures prominently in the strategies proposed by a range of groups and governments seeking to enhance the capacity of governments to effectively and efficiently redistribute income and fund high quality public services for all citizens. Proposals include: raising the marginal tax rates on the highest income earners, eliminating “boutique” tax credits, introducing new taxes on very large inheritances, and treating income from investments and earnings more equitably for the purposes of taxation.

At the same time, there have been calls to improve and enhance the Canada’s system of income security programs to better address poverty and promote social mobility. Meagre to start with, successive rounds of cutbacks have further undercut key programs such as social assistance and Employment Insurance, while others are failing to keep pace with our changing economy and the swelling ranks of the working poor. Cracks are showing in even our most successful programs for seniors. Recent proposals to raise the age of retirement will drive up poverty rates as near seniors are forced to wait another two years to access retirement programs.

Redistribution of Opportunities

Another group of scholars and policy-makers argues that the key to tackling inequality is providing all children with the means to succeed. Redistributive policies reduce social inequality at a point in time, but they do not, by themselves effect long-term change. Improving the lives of very young children is the only assured route to greater equality and social inclusion.

In the United States, Nobel laureate James Heckman is the leading advocate of this view. Heckman argues that birth is now “the principal source of inequality in America today.” Kids born into disadvantaged environments are at much greater risk of being unskilled, having low lifetime earnings and facing a range of lifelong obstacles. The growing gap between the skilled and unskilled can be turned around, however, with early intervention programs. Heckman’s research shows that these programs are not only effective in closing the skills and opportunity gap among children, but generate positive economic returns for every dollar invested.

Early child intervention is part of a suite of human capital strategies that are being promoted to enhance the skills of individual workers and foster economic productivity. The welfare state is no longer seen as an instrument to protect citizens from the risks of life in market economies – but as an instrument to help citizens – and children in particular – meet the challenges of a turbulent, global economy.

Redistribution of Power

Still others argue that supply-side strategies aren’t enough. Demand-side policies that foster innovation and increased productivity as well as stimulate the creation of more well-paid jobs are also an important part of the tool kit of egalitarians. High-equality countries such as Sweden are successful not only because of generous social programs, but also because the primary distribution of income through the job market is fairly equal. Facilitating the growth of “good” employment that is both socially inclusive and highly productive is essential to the vision of a more equal Canada.

Michael Grusky makes the point that the spectacular rise in inequality has been generated within the market – and so we need to concentrate reforming market institutions if we are to be successful. “Powerful corporate interests have been successful in building self-serving and inequality-generating institutions … that have come to be represented – through an ingenious sleight of hand – as laissez-faire capitalism.” We’d have less inequality, Grusky argues, if the labour market and other institutions were in fact more open and competitive.

National and international efforts here have been directed at equalizing the rules of the game: reforming labour market institutions, facilitating the formation of unions, strengthening corporate governance structures, and supporting greater workplace democracy. There are living wage campaigns in many countries including Canada. Strengthening labour standards, including minimum wage laws, has been another avenue of interest.

Encouraging Dialogue

The Broadbent Institute provides a welcome platform to explore and debate the best strategies for creating a more equal Canada. The different proposals outlined above hint at some of the complexity and passion attached to this debate. A broad range of people and organizations will hopefully be encouraged to join in the dialogue and pursue action for change.

Rising inequality represents an extraordinary waste of human potential, relegating members of our community to the social and economic margins. Providing support to meet basic meets, respecting human rights, promoting the active participation of community members in social, economic, cultural and political life, and affording opportunities to learn over the life course are the key building blocks of a new social compact for the 21st century.

Canada should aim for both rising living standards with good jobs, and the most equitable, just and inclusive society we can create together. While we may not be able to do it all, we can certainly do better, much better.

Katherine Scott is Vice-President of the Canadian Council on Social Development.