By David Olive / The Toronto Star
“Sustained and growing prosperity for everyone in a society depends on government investment in people — in education, health care, infrastructure and basic R&D,” says Robert Reich. “That’s what creates first-class human and other essential assets.”
The renowned economist and counsellor to four U.S. presidents was in Toronto to give Thursday’s keynote address at the Progress Gala, an event hosted by the Broadbent Institute, a progressive think tank largely focused on the crisis of income inequality.
Repudiate that formula, Reich, 68, said in an interview with The Star, as the U.S. and to a lesser extent Canada have done in the past three decades, “and you won’t have a general population able to drive consumer spending and growing affluence for all, the richest included. It just can’t be done.”
The widening gap between rich and poor is a worldwide crisis. The richest 1 per cent of the world’s population — equal to the population of France — controls almost half the world’s wealth, or 48 per cent.
In a recent report, the Organization for Economic Co-operation and Development (OECD) declared: “The enormous increase of income inequality on a global scale is one of the most significant — and worrying — features of the development of the world economy in the past 200 years.”
On the 25th anniversary of a unanimous House of Commons vote to eradicate child poverty, an estimated 600,000 Canadian children live below the poverty line.
“Haves and Have-Nots,” a recent report from the Broadbent Institute, enumerates the StatsCan figures that belie Canada’s self-image as a land of widespread prosperity.
In 2012, the latest year for which statistics are available, the top 10 per cent of Canadians, or 3.5 million of us, accounted for almost half, or 47.9 per cent, of the country’s wealth. The bottom 50 per cent, or almost 18 million of us, held less than 6 per cent.
In the U.S., the top 1 per cent of U.S. families control 40 per cent of the nation’s wealth. The five heirs of Sam Walton alone have a combined wealth of $145 billion.
Reich doesn’t begrudge the richest their wealth. He does despair that with wealth comes political power, and a society increasingly run according to the dictates of very few. That helps explain George W. Bush’s massive tax cuts for the rich in 2001 and 2003, and Stephen Harper’s forfeiting of an estimated $10 billion by cutting the GST, justifying his subsequent starvation of state funding for basic research.
In his superb recent documentary, Inequality for All , Reich offers a personal narrative of the causes and ills of income inequality. The film is a blueprint of the practical steps by which North America can correct the economically and socially debilitating tilt toward the wealthy.
There are certain irrefutable facts besides water always running downhill. There is no arguing, for instance, that the U.S. era Reich describes as the “Great Prosperity” — the three-decade span between the late 1940s and the late 1970s — was characterized by high rates of taxation on the wealthy; heavy government investment in the people; and the peak level of unionization in America’s private-sector workforce.
That was the era of high and rising household income in Canada and the U.S., and of heavy state investment in public education that yielded the world’s smartest workforces. It was the era of government investment in the Interstate and Trans-Canada highway systems that boosted economic productivity. It was the era in which more than one-third of private-sector workers belonged to a union.
And it was during that era that America’s burgeoning middle class made the U.S. a superpower, and raised Canada into the ranks of the world’s most affluent countries.
In those three decades, the top U.S. marginal tax rate on the wealthy never fell below 70 per cent. Indeed, it peaked at 91 per cent during the Republican presidential administration of Dwight Eisenhower.
But during the presidency of Ronald Reagan, the top marginal tax rate was slashed to as low as 28 per cent. It hasn’t been higher than 35 per cent since.
The taxes actually paid by the wealthiest Americans are actually closer to an average of 13 per cent, taking deductions and other loopholes into account. The tax paid by lower middle-class workers, by contrast, is about 31 per cent. The tax rate for Warren Buffett is half that of his secretary, which the Oracle of Omaha describes as “an outrage.”
Those lower tax revenues from a wealthy population that, since the 1990s, has seen its share of total national wealth skyrocket to Gilded Age levels, at the same time that middle-class incomes have stagnated, have starved governments of their ability to sustain heavy investment in people and essential infrastructure.
America now has an estimated 88,000 “structurally unsound” bridges. Canada has an estimated $143 billion “infrastructure deficit,” according to the Federation of Canadian Municipalities. “We have been living off the infrastructure investments of the New Deal and Great Prosperity eras,” says Reich, who served as labour secretary during the Clinton administration.
In the 1960s, tuition at the University of California, Berkeley, where Reich teaches, was free. After a succession of budget crises brought on by tax revolts, Sacramento was forced to drastically cut its funding of what had been the world’s best public-education system. That pattern has been replicated throughout the U.S., where most state governments are still rebuilding treasuries depleted during the Great Recession.
Berkeley is now forced to charge annual tuition of almost $23,000 (Cdn.). And the U.S. now ranks about 30th in international test scores, behind Panama and Costa Rica. (Shanghai tops the latest round of global tests. Canada has slipped from 6th to 13th place over the past three years.)
The sharp decline in private-sector union membership has stripped workers of what little leverage they had to claim their fair share of the wealth they create. From Reagan to Mike Harris, governments have made union-organizing drives more difficult, while corporate employers stepped up their successful efforts to destroy existing bargaining units.
Especially in Canada, with a Medicare system more comprehensive even than Obamacare, rocket science is not required to restore a fairer distribution of our collective wealth. Raise taxes on the rich. Use the money to invest in people — their health, education and essential services. And stop thwarting the efforts of those workers who seek to organize their workplaces.
“It’s just common sense,” says Reich of simply taking the steps required to bring back the Golden Prosperity years. He leans forward, a look of weariness and mild frustration crossing his face. “Isn’t it?”