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Homelessness in Canada: Its Growth, Policy Responses, and Advocacy

On February 1, I gave a guest presentation on homelessness to a graduate seminar class on housing policy taught by Steve Pomeroy at Carleton University’s School of Public Policy and Administration. The focus of my presentation was the emergence of homelessness in Canada as a pressing public policy area in the 1980s. I discussed the growth of homelessness, policy responses and advocacy. My slides from the presentation can be downloaded here.

I first got involved in the homelessness sector in 1998 when I began working at a homeless shelter as a front-line worker. All told, I spent 10 years doing front-line work with homeless persons in Toronto; most of that time was as a mental health outreach worker at Street Health. (I also wrote a report on Toronto homelessness in 2009.)

I apologize in advance for the somewhat Toronto-centric nature of the present blog post. Since much of my early experience in the homelessness sector took place in Toronto, this blog post will no doubt omit important developments that have occurred in other parts of Canada.

With the above in mind, here are 10 things to know:

  1. Between 1980 and 2000, the number of persons sleeping in Toronto homeless shelters on a nightly basis increased by 300%. This resulted in more public attention on homelessness. I also think it helped lead to more public resources being channeled to homelessness.
  1. I think six main factors led to that increase in homelessness. During the time period being considered: 1) there were two deep recessions that led to double-digit unemployment levels across Canada; 2) the percentage of unemployed Canadians who qualified for unemployment insurance benefits fell significantly; 3) many Canadian provinces reduced the generosity (I use the term loosely) of their social assistance programs; 4) for-profit developers essentially stopped building rental housing; 5) senior levels of government stopped devoting substantial amounts of funding to the creation of new affordable housing units; and 6) rental vacancy rates dipped to very low levels. I would argue that all of these factors created the ‘perfect storm’ for rising homelessness.
  1. As homelessness grew in Toronto, supportive housing became a popular program response. By supportive housing, I mean government-subsidized, permanent housing for low-income persons, combined with ‘social work’ support to help the tenant maintain their tenancy. (For more on supportive housing, see this report.) In many cases, the homeless person receiving the housing did not have to prove their ‘housing readiness’ in order to receive the housing.
  1. Beginning in 2005, there emerged a lot of talk in Canada about something called housing first. For the purpose of the present blog post, I’ll define housing first as the practice of providing a homeless person with immediate access to permanent housing (rather than requiring that the person prove themselves ‘ready for housing’ before receiving it). I would argue that, at least in Toronto, housing first began in the 1980s with the introduction of supportive housing. In fact, Homes First Society, which started offering supportive housing in Toronto in the early 1980s, was named for precisely the same reason as housing first—its founders believed that people needed homes first before they could work on other challenges (e.g. employment, health problems, etc.). That said, I think the beginning of Streets to Homes (a large housing first program in Toronto) in 2005 ultimately encouraged officials across Canada to be more forthcoming than previously in terms of providing permanent housing to homeless persons without requiring ‘housing readiness.’
  1. The use of the term housing first is confusing. I think that’s because, by definition, it refers to the method by which program administrators determine when a homeless person should receive permanent housing. Yet, because it appeals to persons on the left and right of the political spectrum, it’s become a popular catchphrase. For example, the term appears 118 times in the federal government’s 2014-2019 directive for the Homelessness Partnering Strategy. I suspect the federal government uses the term so frequently in that directive largely because of the term’s popularity.
  1. The same federal department that mentions housing first 118 times in one document also administers federal funding for homelessness that today (on an annual basis) is worth just 35% of what it was in 1999. Last November, I wrote that annual federal funding for homelessness today is worth considerably less than it was in 1999. Indeed, I wrote that, in order for such funding to be restored to 1999 levels, the federal government would have to increase its annual funding for the Homelessness Partnering Strategy from $119 million to $343 million.
  1. Beginning in approximately 2005,[1] there was a shift in terms of who was dominating the public advocacy debate on homelessness in Canada. I think that many of the people who’d previously been strong advocates for the homeless on a national level started to ‘run out of gas’ (not to mention resources). Meanwhile, a new crop of advocates started to emerge. Suddenly, the most vocal advocates were more ‘glass half full’ than their predecessors. A key—often implicit—argument of the new generation of advocates was that public resources for the homeless had been mismanaged in the past and that, if they were better managed going forward, we would see major reductions in homelessness (possibly without a great deal more public spending). I’ve come to know key players in both the pre-2005 and post-2005 camps and have great admiration for their tenacity and integrity. I also think that each approach has its strengths.
  1. I think a strength of the pre-2005 ‘glass half empty’ approach was its brutal honesty. Many would argue that an honest, meaningful discussion about homelessness must include a strong focus on high mortality rates among persons experiencing homelessness; and you could always count on the pre-2005 advocates to raise this topic loudly. Moreover, the Toronto Disaster Relief Committee’s call for senior levels of government to double annual spending on affordable housing, in my opinion, would have been good public policy.
  1. I think a strength of the post-2005 ‘glass half full’ approach is that it often presents as non-threatening to public officials. I find that adherents of this approach like to publicly applaud announcements and long-term goals that have the potential to reduce homelessness, even when such moves aren’t accompanied by new funding. Indeed, incremental moves by government are publicly applauded. The success of the aforementioned housing first approach is often offered as proof that methods of responding to homelessness have indeed improved over the years. I would argue that one key organization that embodies this ‘glass half full’ approach is the Canadian Alliance to End Homelessness.
  1. There’s no inherent reason why both approaches can’t co-exist and complement each other. I think the ‘glass half empty’ advocates can create space for the ‘glass half full’ advocates. A colleague of mine refers to the former as “outsiders”—they’re typically outside the offices of elected officials and senior government staff. The same colleague refers to the latter as “insiders”—they’re very often meeting inside the offices of elected officials and government staff. In short, I think there’s room both inside and outside the offices of decision-makers for important conversations about homelessness.

[1] I’ve somewhat arbitrarily chosen 2005, as that’s the year that the City of Toronto introduced its Streets to Homes program.

The 2016 Federal Budget

Here is a link to the Broadbent Institute pre Budget Submission, trying to push the Liberal platform in a more progressive and social democratic direction.

http://www.broadbentinstitute.ca/budget_2016_charting_progressive_agenda

 

W. A. Mackintosh: Great Canadian Economist of the 20th Century

There were two great Canadian economists of the last century: H.A. Innis and W.A. Mackintosh. Innis had been much written about but not Mackintosh. This is now corrected by a thoroughly researched biography by Hugh Grant of the University of Winnipeg with the straightforward title W.A. Mackintosh: The Life of a Canadian economist.

Mackintosh was both a distinguished scholar and a policy activist. He co-founded tne staples theory with Innis and wrote a brilliant book on wheat as a staple. He played a key role in bringing Keynes to Canada in the late 1930s. He was a member of the Canadian delegation to Bretton Woods and rubbed shoulders with Keynes. All the while the editor of the Canadian Banker. Unlike Innis, he resonded to circumstaners, like the Great Depression.

After our last election Paul Krugman wrote a column on how the Liberals had abandoned a commitment to balanced budgets and thereby brought Keynes to Canada. He was off by 75 years. Mackenzie King with the expertise of Mackintosh had made Canada one of the first countries in the world to implement Keynes.

Mackitosh was a progressive economist years ago and he should be honoured by us today. The mainstream profession won`t because it has slight interest in history. WhMackintosh did should be known and Grant has given us the opportunity to know.

Stanford Responds to Moffatt: Why I Still Worry About Auto Job Losses Under a TPP

My friend and fellow #cdnecon tweeter Mike Moffatt has published a thought-provoking commentary regarding the impact of the proposed Trans Pacific Partnership (TPP) on Canada’s auto industry. Specifically, Mike engages critically with previous arguments I have made (on this site and elsewhere) that the TPP, as currently negotiated, could result in the ultimate loss of tens of thousands of Canadian auto jobs, due to the relocation of a significant proportion of the industry’s North American supply chain.  In this blog post I will respond to his three main arguments. Read more »

Boosting the economy for the rest of us

Elites and the talking heads in the media are arguing about how to respond to Canada’s soured economic outlook. Who should try to boost the economy, the federal government via fiscal stimulus or the Bank of Canada via monetary policy? But while elites argue amongst themselves, the overriding context is a transfer and concentration of economic power upwards. This, not $10 billion here or 0.25% there, is what hamstrings any policy response going to the benefit of the many.

First, some context. Yesterday’s report from the Bank of Canada describing the state of the economy did not make for happy reading. While there is no crash, no panic and no crisis, the picture isn’t particularly rosy. The kind of generalized malaise and stagnation that has affected much of the globe since the last crisis—and that our resource boom staved off—seems to be hitting home. The Bank revised downwards its projections for both growth and inflation, and has a history of being overoptimistic.

As the big drop in the price of oil is looking more and more long-term (and actually coming back to what it has been in inflation-adjusted terms in the very long run), other parts of the economy have not yet picked up the slack. More Bank of Canada analysis released yesterday, focusing on the impact of cheap oil, said as much. Here’s the headline chart showing a projected long negative adjustment to lower oil prices across the whole economy, beyond just the oil provinces: Read more »

Redistribution, Inequality, and Federal Policy: Guest Post by Edgardo Sepulveda

We are pleased to present this rich guest post by a new PEF member, Edgardo Sepulveda. Edgardo has been a consulting economist for more than two decades advising Governments and operators in more than 40 countries on telecommunications policy and regulation matters (www.esepulveda.com).

Redistribution, Inequality and the new Federal Tax & Transfer initiatives

I want to present an analysis of Canada’s taxation and transfers system from a historical and international perspective, focussing on how changes in Canada’s fiscal redistribution over the last two decades have increased after tax income inequality. I also situate three of the new Federal Government’s proposed initiatives: the “middle class tax cut” (“MCTC”), the new Canada Child Benefit (“CCB”); and increases to GIS benefits in this broader context. This work brings together several elements that have been discussed here and in other research, and updates the analysis based on recently-released internationally-comparable data from the OECD.

Analysis

Figure 1 presents “market” and “after tax” income Gini coefficients for Canada and the OECD. Market income is before taxes and government cash transfers, while after tax income is after taxes and transfers. The Gini coefficient varies from 0 to 1.00, with higher values representing higher inequality. For comparative purposes, I include the “OECD-14” (representing the 14 OECD Member-Countries for which Gini coefficients are available from the mid-1980s) average, as well as the traditional inequality/taxation revenue “book-ends”: the USA and the four larger Nordic countries (“Nordics-4”: Denmark, Finland, Norway and Sweden).

Sepulveda Fig1

 

Figure 1 shows that market income inequality generally increased relatively quickly until the mid-1990s, after which it slowed down or stabilized across the OECD-14. Canada’s market inequality is below the OECD-14, similar to that of the Nordics-4 and lower than the USA. Governments redistribute income via the tax and transfer systems (“fiscal redistribution” or “redistribution”) and hence after tax income Gini coefficients are always lower than the respective market income Gini coefficients.

Fiscal redistribution varies significantly across time and countries. For example, Canada has historically had lower market inequality than the OECD-14, but has historically had higher after tax inequality. Similarly, Canada has had market inequality comparable to the Nordics-4, but has historically had much higher after tax inequality. One way to measure redistribution is presented in Figure 2, which shows the percentage difference between market and after tax income Gini coefficients. For example, Canada’s figure of 34% for 1994 indicates that redistribution reduced market to after tax inequality from 0.432 to 0.287. Figure 2 confirms that Canada (currently at 27%) has traditionally had less redistribution than the OECD-14 (currently at 35%) and the Nordics-4 (currently at 41%) and that its redistribution has decreased since peaking in 1994. Redistribution in Canada has been closer to the USA (currently at 23%) for more than a decade.

Sepulveda Fig2

A country’s redistribution is a combination of its fiscal capacity and allocation of revenues and expenditures. Figure 3 presents total (“all Government”) taxation revenues as a percentage of GDP and shows a steady increase and subsequent stabilization until about the mid/late 1990s for Canada, the OECD-14 and the Nordics-4, at around 35%, 37% and 45%, respectively (the USA is an outlier at around 25%). Figure 3 shows that Canada’s taxation revenues to GDP started to decline in the late 1990’s so that by the 2010s Canada had stabilized at around 30%-31%; Canada is now closer to the USA than the OECD-14 and is at its lowest level since 1980.

Sepulveda Figure 3 (standard res1)

 

Research has shown that transfers have generally accounted for about two-thirds of the redistributive impact, with taxes accounting for the other third. Personal income tax (PIT) revenues to GDP in Canada have been historically similar to those in the OECD-14, and hence cannot explain the differences in redistribution. In fact, Figure 4 shows that these differences are due to transfers; Canada has historically had lower transfers to GDP than the OECD-14. Since 1980, the OECD-14 have on average allocated 34% of total taxation revenues to transfers, while Canada has averaged 28%. Taken together, Canada’s relatively low and decreasing taxation revenues to GDP and its low allocation to transfers have led to comparatively low and decreasing transfers, resulting in low and, and since 1994, decreasing redistribution.

Sepulveda Figure 4 (standard res)

 

The next two figures separate the effect of taxes and transfers on redistribution since it peaked in 1994. This more disaggregate analysis is possible for Canada because Statistics Canada also makes available the “total” income Gini coefficient (not available from the OECD), which is the market income plus transfers, but before taxes.

Sepulveda Fig5

For Canada, Figure 5 brings together the changes in transfers to GDP with the transfers component of redistribution. Figure 5 also includes total redistribution (all numbers indexed to 1.00 in 1994). Figure 5 shows that transfers to GDP and transfers redistribution are closely correlated and have stabilized at between 20%-25% below the 1994 peak: decreased transfers lead to less redistribution. Transfers redistribution decreased more than total redistribution. The redistributive impact of any fiscal variable may be disaggregated between the size and the progressivity of the variable. The close relationship between transfers and transfers redistribution suggests that it is primarily the size of transfers that has changed since 1994 (with only modest changes in progressivity). In effect, other research indicates that the main drivers of this overall reduction were decreases in the “size” of provincial social assistance (SA) and federal Employment Insurance (EI) relative to GDP.

Figure 6 presents the equivalent data for the taxation component and shows that both PIT revenues to GDP and the tax redistribution increased from 1994 to 1999 (higher taxes led to greater redistribution), after which they generally decreased (lower taxes led to less redistribution). Figure 6 shows a relatively close relationship between the two variables over the 1994-1999 period, but less so during the 2000-2014 period, with PIT decreases not resulting in commensurate increases in inequality, suggesting that the progressivity of PIT increased somewhat during this period.

Sepulveda Figure 6 (standard res)

 

Discussion

Canada’s tax and transfers have historically provided less fiscal redistribution than almost all our OECD-14 counterparts. Most of the difference in this performance is due to Canada’s low and declining transfers, which together with lower personal income taxes, has led to higher after tax income inequality in Canada over the last two decades.  This is in spite of underlying market income inequality being relatively stable over this period.  In almost all these respects Canada has diverged from the OECD-14 and converged to the USA over the last two decades.

Such changes in fiscal redistribution are policy-induced and therefore subject to change. I have shown that other OECD-14 counterparts have achieved and maintained much higher redistribution and lower after tax income inequality.

This analysis identifies a number of broad policy options to increase redistribution, which I also use to situate and discuss the new Federal Government’s three proposed initiatives.

·         One policy option is to increase the progressivity of taxes and/or transfers. The MCTC is a good example of this, in that it re-allocates about $3 billion of PIT around the upper income distribution while (more or less) being “revenue neutral”. The MCTC is therefore modestly progressive but its relative “size” is very modest (accounting for less than 2% of PIT revenues), so I expect its redistributive impact will be very modest.

·         A second policy option is to increase the size of taxes and/or transfers. The increase of about $0.7 billion in GIS benefits is a good example of this. This proposed initiative may be expected to be relatively progressive, but its relative size is very modest (accounting for less than 1% of Government cash transfers), so its redistributive impact will also be very modest.

·         A third policy option is to combine an increase in the size and progressivity of taxes and/or transfers. The new CCB is a good example of this because it eliminates three existing child benefits (about $18 billion + $2 billion from income splitting elimination) and combines them into a new $22 billion CCB (with an additional $2 billion) (therefore a net increase of $4 billion), that is designed to be somewhat more progressive. I expect that the CCB will have a modest redistributive impact.

All three Federal Government initiatives will increase redistribution and will therefore reduce after tax income inequality. As possible future work I may try to model the redistributive impact of these three initiatives. Based on the analysis above and other research, my current “back of the envelope” estimate is that, ceteris paribus, when fully implemented, the combined redistributive impact of the three initiatives would decrease Canada’s after tax Gini coefficient by perhaps up to 0.005 points and thus increase Canada’s redistribution perhaps by one percentage point – that is, from the current 27% to perhaps about 28%. These initiatives are therefore relatively very modest and would constitute only first steps in a long process towards returning Canada’s redistribution to prior levels (peak of 34%) or those that are comparable to most of our OECD-14 counterparts (currently at 35%), let alone the Nordics-4 (currently at 41%).

Of course, given Canada’s system of fiscal federalism, the Provinces would also have to do their part. The Provinces together collect PIT revenues that are comparable to those of the Federal Government, receive transfer payment from the Federal Government intended for social programs (the Canada Social Transfer (CST)) and are also responsible for important transfers, including social assistance (SA); hence have both the fiscal capacity and the tools to increase redistribution.  As noted above, the size of SA relative to GDP has decreased considerably since the mid-1990s. Using the same “back of the envelope” methodology, I estimate that for the Provinces to “match” the one percentage point redistribution increase from the Federal Government’s three initiatives, they would have to, for example, increase the “size” of SA by perhaps in the range of $5-$6 billion in total. Such an increase could be through some combination of broadening the eligibility criteria or increasing the amount of cash benefits.

Canada Once Again Adding Value to Its Exports

In the course of researching a forthcoming commentary on Canada’s trade policy for the good folks over at the IRPP, I stumbled upon a surprising and encouraging bit of data.  I grouped Statistics Canada’s series on exports and imports by broad commodity grouping (CANSIM Table 228-8059) into three categories: 4 primary sectors (including agriculture, energy, mining, and forestry), 2 intermediate sectors (basic metal and industrial products), and 5 value-added sectors (machinery, electronics, auto, aerospace & other transport equipment, and consumer goods).  Canada’s overall trade balance has deteriorated badly since 2014 (from an already weak position), thanks in large part to declining energy prices.  But there are some bright spots in the picture. Read more »

Jobs and Growth after the Great Recession

This is the time of year when articles list their favourite things about last year, and their “things to watch” for the next year.

Naturally, my “things to watch” list will always include the labour market. Where have we seen the strongest job growth or worst job losses, and what are the trends that might affect this in the coming year.

We know that the employment rate (the proportion of Canadians over 15 who have a job) has never really recovered from the 2008 / 2009 recession. While this is partly because of demographic trends, I still think that this is an important indicator to watch, as it reflects the proportion of the adult population in paid employment. Full employment is a worthwhile goal, as jobs are still the main way that we create wealth / distribute income.

Employment rate

So where are the jobs going to be in 2016?

Well, we know where they weren’t in 2015. Looking at the most recent SEPH data by industry, the impact of lower oil prices are clear. The table below compares the employment levels in industries at the three digit NAICS level. Support activities for resource extraction tops the list of job losses over the past year, by a wide margin. General merchandise stores comes in second, and I’ve bolded it because it is the only industry that makes the worst 5 list both in the past year, and since October 2008. Perhaps surprisingly, provincial and territorial public admin makes the top 5 list for job losses.

CANSIM 281-0023, seasonally unadjusted

CANSIM 281-0023, seasonally unadjusted

On a more positive note, let’s see where the growth is happening. SEPH data in recent years has had a disproportionate number of unclassified businesses, so it is no surprise that this is the *industry* with the most employment growth over the past year. More meaningful is the employment growth in food services, social assistance, and hospitals. Again, food services is bolded because it made it into the top 5 list for the past year, and since October 2008. (I’ve included 6 industries here because of a connection with the job vacancy data).

CANSIM 281-0023, seasonally unadjusted

CANSIM 281-0023, seasonally unadjusted

So how does this job growth compare to reported vacancies, perhaps a better indicator of where short term job growth will be coming from? Food services and drinking places tops the job vacancies list too. Unfortunately for workers, the average wage offered in this industry is the lowest of all reported in the Job Vacancy and Wage Survey.

CANSIM 285-0002

CANSIM 285-0002

A better indicator for workers might be where are wages rising, and where are they falling. Over time the new Job Vacancy and Wage Survey should be able to give us a decent understanding of this. Right now we only have two data points, Q1 and Q2 of 2015, when we were smack dab in the middle of an oil shock induced recession. For what it’s worth, so far the fastest growing wages on offer are in data processing, financial investments, and high tech manufacturing. The biggest wage offer declines were seen in natural resource sectors.

Where are the jobs with decent wages going to be in 2016? Demand in health care and social services will continue, but nearly all provincial governments are coming up against self-inflicted revenue constraints which will affect both hiring and wages in this sector. Low wage jobs abound, so movements like #Fightfor15 become even more important. Unions and other civil society groups that are pushing for better employment standards for precarious workers, and for universal benefits will become even more necessary in the next few years.

Real test of Paris climate agreement will be how markets and regulators react

So did we save the planet?

From the outset, this was never about “saving the planet.” Our spinning hunk of rock has been around billions of years and will continue to support diverse life forms long past the time humans roam it. The question is whether we have a planet that can support human life over the long term, in something close to the style with which we have become accustomed.

The answer is maybe: IF countries go back and deliver on their commitments, and IF they table more ambitious policies in the coming years, then MAYBE we can put a lid on global warming and keep the worst damage at bay. Time will tell.

The Paris Agreement on climate change is, yes, historic, an important step forward on this pressing collective action problem. After 21 years of meetings, all countries have now signed on and pledged to turn away from fossil fuels. There is some hard science baked in to the Agreement that implies, but does not overtly say, decarbonization or 100% renewables by 2050. There is a ratcheting mechanism whereby countries must tighten up their commitments every five years.

But as the saying goes, “the road to hell is paved with good intention.” We have a piece of paper that represents a statement of grand ambition, but lacking the commitments from countries to make it happen, and absent the enforcement teeth one would see in, say, a trade and investment agreement.

When it comes to commerce, for example, governments can challenge governments to live up to their trade and investment commitments. In many bilateral and regional trade and investment agreements, corporations can sue governments directly for perceived injustices. Contrast that with the dilution of loss and damage section of the Paris agreement, which excludes liability and compensation. Ditto for failure to include indigenous rights, since it is indigenous people around the world who are on the front lines of battles against fossil fuel and mining extraction.

Many actors on this stage have a stake in claiming victory with this agreement. Don’t listen to them. The real test will be what happens in the financial markets on Monday morning: will there be a sell-off of fossil fuel stocks because the world has now recognized the vast majority of reserves need to stay underground, and therefore the business plans of the “carbon majors” are inconsistent with new international law? Or will it just be back to business as usual?

Another series of tests will be around whether new LNG terminals or bitumen pipelines get approved in 2016. The emphasis of the (largely voluntary) Paris Agreement is on reducing consumption of fossil fuels, but many jurisdictions have been seeking to push more fossil fuel reserves onto world markets, even amid low, low commodity prices. This plays into “all of the above” political commitments that talk climate action on one hand, and boosting oil and gas production on the other.

While it is heart-warming that leaders recognized the need for greater ambition, in the form of a 1.5 degree target, rather than 2 degrees, it is not clear that politicians and negotiators really get what that entails. Missing is a coherent framework that clearly states a carbon budget – a total amount of carbon we can “safely” use before exceeding 1.5 degrees. Pre-Paris estimates put the commitments on the table at being more consistent with 3 or more degrees of temperature increase. The negotiations themselves rendered the previous 2 degree target near-impossible, so there is no way we can even contemplate a 1.5 degree target without serious measures to keep carbon in the ground.

After two decades of dithering in five-star hotels in the capitols of the world, this appears to be the best that our political leaders are able to do. One wonders how much worse the agreement could have been with a PM Harper still in power.

What happens next will make all the difference: PM Trudeau has committed to meeting with the Premiers within 90 days to make concrete a pan-Canadian plan of action. It will be up to Canadians to ensure our country moves beyond vague commitments toward effective climate policies. So take a breather, celebrate this new Paris Agreement, then be prepared to fight for it in 2016.

 

Dix choses à savoir sur les défis associés avec mettre fin à l’itinérance au Canada

Le 18 novembre, j’ai fait une présentation sur les défis en ce qui concerne « mettre fin à l’itinérance » au Canada au 7 Cities Leadership Summit à Edmonton. Ma présentation, illustrée de diapositives, peut être téléchargée ici.

Voici dix choses à savoir en tant que défis concernant « mettre fin à l’itinérance » au Canada.

  1. En 2008, Calgary est devenue la première municipalité canadienne à s’engager publiquement à mettre fin à l’itinérance.  Plus d’une douzaine d’autres municipalités canadiennes ont fait la même chose depuis lors; ainsi le maire de Medicine Hat a récemment affirmé que sa municipalité avait mis fin à l’itinérance.  De tels plans ont le potentiel de sensibiliser et de concentrer les efforts collectifs pour développer de nouvelles pratiques visant la fin de l’itinérance. Je pense que l’une des raisons pour lesquelles plusieurs villes en Alberta ont adopté de telles approches découle de l’utilisation réussie de campagnes de sensibilisation similaires aux États-Unis. Lors d’une conférence à Toronto en 2009, Nan Roman a déclaré: « En disant que le problème continuait, nous ne recevions pas de ressources. En nous concentrant sur des solutions, nous avons obtenu plus de ressources. » Autrement dit, en parlant positivement (et en démontrant des résultats positifs) on peut obtenir plus de ressources pour lutter contre l’itinérance; c’est là,  je pense, une raison importante qui a ammené de nombreux avocats au Canada à élaborer des stratégies pour mettre fin à l’itinérance.

Read more »

Making Real Change Happen

Today’s throne speech was notable for its brevity, but there were certainly a lot of priorities packed into those 1600 words. A small selection:

  1. “The Government will, as an immediate priority, deliver a tax cut for the middle class.” This is quite easily my least favourite action promised by the new Liberal government. The plan increases the marginal tax rate on high income earners, and gives it back on earned income between $45K – $89K. Thanks to the magic of marginal tax rates, this means you only get the maximum $670 if you earn more than 89K. Combine that with median incomes in the $30K range, and you can see that this does very little for middle income earners. The NDP have proposed changes that would reach more Canadians, which I hope the government takes seriously.
  2. “The Government has also committed to provide more direct help to those who need it by giving less to those who do not. The new Canada Child Benefit will do just that.” This change will make a real difference for low income families with children. 5 thumbs up.
  3. “To give Canadians a more secure retirement, the Government will work with the provinces and territories to enhance the Canada Pension Plan.” This will be huge for the 11 million workers in Canada who don’t have a workplace pension plan, particularly young workers.
  4. “The Employment Insurance system will be strengthened to make sure that it best serves both the Canadian economy and all Canadians who need it.” This is one social program that is particularly close to my heart, and I am cautiously optimistic that this will bring positive change to a key pillar of our badly frayed social safety net.
  5. “The Government will undertake these and other initiatives while pursuing a fiscal plan that is responsible, transparent and suited to challenging economic times.” So this is pretty vague, but I think we need to look at what wasn’t said. There is no mention of returning to balance in 2019 (hallelujah!), and not even any mention of debt-to-GDP targets. In conjunction with public statements by Bill Morneau, let’s hope this means that the new government is comfortable with a probable $15B – $20B deficit for FY2016/17. In the face of today’s job numbers, it looks like we’ll be needing that lift.

Is your pension in climate denial?

Fossil fuel divestment campaigns have become a focus for climate change organizing, targeting university endowments, churches, foundations and pension funds. While the motivations are primarily moral—if it is wrong to wreck the climate, it is wrong to profit from that wreckage—there are important economic arguments for divestment.

If we are to have a reasonable chance at staying below 2°C of global warming – the target for international negotiations – between two-thirds and four-fifths of proven fossil fuel reserves (those already near development) will need to stay underground, forever.

This situation is even more dire for Canada due to our economic reliance on fossil fuels, plus our high costs of production. Figure 1 from our new report, Pension Funds and Fossil Fuels: The Economic Case for Divestment (co-authored with Justin Ritchie), presents a cost curve ranking of future oil production around the world, from lowest to highest cost, mapped against various estimates of a global carbon budget.

In a world of constrained carbon, the lowest-cost reserves are likely to be developed first. Canada is a relatively high-cost producer, with Canadian heavy oil projects (in green) requiring a breakeven price of $70-85 per barrel. To meaningfully address climate change, a large share of Canada’s bitumen reserves cannot be developed.

Screen Shot 2015-11-17 at 11.52.01 AM

Institutional investors, including some pension funds, are increasingly aware that fossil fuel company business models are not compatible with a habitable planet. But this is not reflected in the annual reports of Canadian public pension funds, which don’t mention climate change as a material risk to pension sustainability.

In effect, Canadian pension funds have been living in a form of climate denial through their major holdings of fossil fuel stock, and are thus exposed to risks from new policies to address climate change. Integrating an understanding of climate policy risk that includes the potential for new regulations, carbon pricing, emission caps and unburnable carbon reserves is a logical next step in the conversation on sustainability within the pension world.

In addition to climate policy, a number of other risk factors could turn today’s fossil fuel stock into tomorrow’s stranded assets:

  • Commodity price risk – As we have seen since mid-2014, low commodity prices have shelved new investment in Alberta’s oil sands, and hit the bottom lines of companies. We estimate that the accompanying drop in share prices amounted to a loss of $5.8 billion for Canada’s top 20 public sector pension funds. 
  • Energy innovation risk – The cost of renewable electricity generation in recent years has fallen close to fossil-fuel-based energy. Renewables, plus conservation and energy efficiency, may be better poised to meet new energy demand.
  • Carbon liability risk – The link between carbon emissions and damages is evolving, and as Governor of the Bank of England Mark Carney recently commented, it is possible we will soon see fossil fuel producers held liable for damages. This is similar to tobacco companies being sued for health damages resulting from use of their products. A new investigation of Exxon’s climate denial practices by the New York Attorney General also points towards future litigation.
  • First Nations and community opposition risk – Fossil fuel mega-projects are facing delays and opposition wherever proposed. Enbridge’s Northern Gateway and TransCanada’s KeystoneXL pipeline projects are the most recent to get shelved due to popular protest. Even though the previous federal government had approved the Enbridge pipeline, legal challenges from affected First Nations meant it was unlikely the project would ever get built.

In this context, the concept of fiduciary duty needs a rethink. Because of the long-term planning horizons of pension funds, climate change must be taken seriously by trustees, and funds must equally represent the interests of young workers for their eventual retirements.

Divestment from fossil fuels is, in our opinion, consistent with fiduciary duty. But funds can and should also play a transformative role in building and scaling up the green infrastructure needed for a zero-carbon world. Infrastructure requires up-front capital investment with a return paid out over decades, which aligns well with the needs and long-term horizons of pension funds. A great deal of that money will need to come from the public sector through vehicles such as green bonds.

We recommend a four-point plan: (1) higher standards of disclosure so there is daylight on fossil fuel holdings; (2) carbon stress testing to clarify the risks associated with fossil fuel holdings, and develop criteria to evaluate best and worst performers; (3) engagement with companies about their capital expenditure plans; and, (4) developing a process for divestment from fossil fuels and re-investment in green alternatives.

* Thanks to Justin Ritchie for his excellent research in support of this report.

 

Ten Things to Know About the Challenges of Ending Homelessness in Canada

On November 18, I gave a presentation on “ending homelessness” at the 7 Cities Leadership Summit in Edmonton. My PowerPoint slides can be downloaded here.

Here are ten things to know about “ending homelessness” in Canada:

1. In 2008, Calgary became the first Canadian municipality to publicly commit to “ending homelessness.” More than a dozen other Canadian municipalities have since followed suit, with Medicine Hat’s Mayor recently claiming that his municipality has indeed “ended homelessness.” Such plans have the potential to raise awareness and focus collective efforts to develop new practices focused on ending homelessness. I think one reason Alberta communities have adopted such advocacy approaches stems from the successful use of similar advocacy campaigns in the United States. Speaking at a Toronto conference in 2009—and drawing on successful homelessness advocacy campaigns in the United States—Nan Roman said: “By saying the problem keeps getting worse, we weren’t getting resources. By focusing on solutions, we got more resources.” Put differently, speaking positively (and demonstrating positive outcomes) can result in more resources being committed to fighting homelessness; and I think that’s been an important reason that many advocates in Canada have developed “ending homelessness” strategies.

Read more »

Progressive, pro-family, pro-growth

A good parental leave system makes children more affordable, and improves gender equity in the labour force and at home.

In Quebec, parental leave innovations include time reserved solely for the father, higher replacement rates, and flexibility. This has dramatically increased the number of fathers taking parental leaves, which in turn has a long-term impact on the distribution of labour within the home. (It may also have contributed to Quebec’s shrinking pay gap – which is happening at a time when the gender pay gap in the rest of Canada is stagnating.)

While it is clear that “use-it-or-lose-it” parental leave for fathers will nudge more of them to take leave, research shows that higher replacement rates make a difference as well.

A Statistics Canada review of European parental leave programs shows that take-up rates for parental leaves are lower where replacement rates are low.

“since men, on average, earn more than women, families may be dissuaded from having the father claim parental leave because of the greater financial burden (Moss and O’Brien 2006).”

This is why I was so excited to see the Newfoundland and Labrador NDP propose  a substantial top-up to parental leave (from 55% to 80%), paid from provincial coffers. The province is facing a declining birthrate, and has been hard-hit by the falling price of oil.

This is exactly the kind of policy that supports families in their choices, but works against the structural economic forces that disadvantage women. Bravo, NL NDP for a well-designed, feminist & progressive policy.

Let’s hope other provinces are paying attention.

Who’s Afraid of Deficits?

We all knew that Budget 2015 was optimistic about medium term growth and rebounding oil prices, but the good people at the PBO have given us an indication of just how far off those projections were.  They estimate that nominal GDP will be about $20B lower through 2020 ($30B lower in 2016), which also means bigger government deficits through 2020.

While pundits had been OK with small, temporary deficits, at this news some headlines shouted that the Liberal’s plan to balance the budget was in jeopardy, and others contemplated the possibility that the new government would be less bold in the face of economic weakness.

Of course that is exactly the wrong response, and gladly McCallum pointed out the obvious, that this news “is something that underlines the need for the job-creating infrastructure investments”.

There has emerged a mainstream consensus that deficits / surpluses don’t matter so much, that a better yardstick of fiscal sustainability is our debt-to-GDP ratio. So what does yesterday’s news mean for this indicator?

Assuming the Liberal government fully implements the investment promises in its platform and the PBO projections are correct, the debt-to-gdp ratio is still projected to fall by 3 percentage points between now and 2019/20. In fact, the ‘modest’ deficits proposed in the Liberal platform only add 1 percentage point to the debt-to-GDP ratio over this timeframe, which translates into an increase of about $42B in debt between 2015/16 and 2019/20. (And, all of this assumes that there is no short term stimulative effect from the proposed spending either.)

debt2gdp

 

Let us look at the increase in spending/borrowing over the 2015-16 to 2019-20 timeframe that would result from targeting various debt-to-gdp ratios.

Assuming the PBO projections for GDP growth are correct, the federal government could borrow more than twice as much over the next four years – $86B – and the debt-to-GDP ratio would still be lower than when they took office.

Debt

 

Given that the economic news has worsened, a case should be made for increasing spending. Even though we aren’t in a recession any more, we are facing a period of what Armine calls “slowth”. Demographic shifts, among other things, are limiting our economic potential.  Investments should target medium to long term growth, and meet basic needs that have fallen through neo-liberal cracks – such as clean water for First Nations communities.

There is more than enough room for increased investment, even given mainstream economic constraints.

Five Things to Know About Pre-1964 Canadian Housing Policy

On November 4, I gave a historical presentation on Canadian housing policy at the annual conference of the Canadian Alliance to End Homelessness. My slide presentation, which focused on pre-1964 Canadian social history, can be downloaded here.

Here are five things to know about pre-1964 history that set the tone for important developments in Canadian housing policy:

  1. Prior to the 1940s, there was virtually no government-assisted housing for anyone at all in Canada. In the early 1900s, if you were without work and needed help paying the bills, you typically had to rely on family or friends for assistance. In some cases, a social welfare agency might provide you with time-limited support (i.e. used clothing, food, fuel); in other cases, a local church might help you. But barring any of those options, you likely faced destitution.

Read more »

Cinq choses à savoir sur la politique du logement au Canada, avant 1964

Le 4 novembre, j’ai fait une présentation sur la politique du logement au Canada, lors de la Conférence nationale pour mettre fin à l’itinérance. Ma présentation (qui a porté sur l’histoire sociale canadienne avant 1964) illustrée de diapositives, peut être téléchargée ici.

Voici cinq choses à savoir sur l’histoire avant 1964, période qui a donné le ton à des développements importants dans la politique du logement au Canada:

  1. Avant les années 1940, il n’y avait pratiquement pas de logements subventionnés par le gouvernement au Canada. Dans les années 1900, si on était sans travail et avait besoin d’aide pour payer les factures, on devait généralement compter sur sa famille ou ses amis. Dans certains cas, un organisme de protection sociale pouvait fournir un soutien limité dans le temps (par exemple, des vêtements, de la nourriture, de l’essence); dans d’autres cas, l’ église pouvait aider. Sans cela, on était probablement confronté par l’indigence.

Read more »

Economics for Everyone, 2nd Ed.: Book Tour!

The second edition of Economics for Everyone: A Short Guide to the Economics of Capitalism was co-published by Pluto Books, the Canadian Centre for Policy Alternatives, and Fernwood Publishing this summer.  With the federal election now safely behind us, I am pleased to announce a series of book launch events in 4 cities.  Details are below; each event will feature a talk by me, Q&A, reception, and book-signing.  Many thanks to the CCPA offices in each location which are hosting the tour, and to Unifor for its ongoing support.

The book will be available for sale at each event, $25, all proceeds go to the CCPA.  (It can also be ordered on-line through the CCPA here.)

See you there!

Vancouver, Sunday Nov. 15: 6 PM, Heartwood City Cafe, 317 E.Broadway

Winnipeg, Tuesday Nov. 24: 7 PM, Neechi Commons, 865 Main Street

Ottawa, Thursday Nov. 26: 5 PM, 25onecommunity, 251 Bank Street

Toronto, Friday Dec. 4: 5 PM, Chestnut Room, Sheraton Centre Hotel, 123 Queen Street W.

Election 2015 and the Battle of Economic Ideas

I am not a member of a political party. I recognize the importance of elections, participate in election campaigns (including canvassing and raising money for good candidates), and engage heavily in election-related debates (like the detailed critique of the Harper government’s economic record I co-authored, with Jordan Brennan, for Unifor). But I am skeptical of the motivations and opportunism of electoral parties, perpetually disappointed by their cynical and often unprincipled actions, and unwilling to compromise what I think are clear and important progressive ideas for the sake of a party’s “brand.”  I have concluded that the most effective contribution I can personally make to social change is to focus on the ongoing intellectual and ideological contest over what sort of economy and society is desirable and attainable.  That ongoing “battle of ideas,” not the quadrennial battle of party logos, is what ultimately determines our trajectory as a society. Read more »

Some missing elements from the Canadian TPP debate

With an agreement reached on the Trans Pacific Partnership, the 12-member trade and investment treaty, opinions began swirling about what the deal means for the future of Canada. Plenty of facts have been bandied about in an effort to clarify the TPP’s significance: 12 Pacific Rim countries, 800 million people, 36 percent of global GDP and 25 percent of global trade, among others. But what do these facts mean? They don’t tell us a thing about what will happen once the agreement comes into force. If the speculation of Canada’s punditry is to be believed, the TPP will do the following. By reducing tariffs and opening Canada’s borders to increased foreign competition, domestic producers in tradable sectors will be compelled to innovate or lose market share. Increased innovation will lead to higher productivity and better and/or more competitively priced products, which will elevate exports, and consequently, boost GDP growth. This line of reasoning leads some to conclude that the TPP is a ‘big win’ for Canadian commercial statesmanship. Why does Canada’s intellectual class believe that the TPP is coterminous with economic progress?

 

Since the early nineteenth century, (many) economists have argued that liberalizing trade between countries produces mutually advantageous outcomes, even in the extreme case where one country produces all of the traded commodities more efficiently than the other. David Ricardo’s doctrine of ‘comparative advantage’ and the Heckscher-Ohlin model of international trade are the two most historically influential arguments for trade and investment liberalization (TAIL hereafter). Despite their logical coherence, both theories were abstract rationalizations generated through a process of deductive reasoning. Neither theory was anchored in empirical fact or economic history. But if we are to infer the likely consequences of the TPP we have to turn to Canada’s actual experience with TAIL.

 

With Canada’s entry into a North America-wide TAIL regime in the late 1980s and early 1990s, tariff schedules were reduced and trade increased, though it must be stressed that tariffs had been on the decline for a full century before the Canada-US Free Trade Agreement came into effect in 1989. Did reductions in the North American tariff schedule lead to the surge in Canadian exports in the 1990s? Figure 1 contrasts Canadian exports with the relative value of the Canadian dollar. Unsurprisingly, when the Canadian dollar devalues, domestically produced commodities become relatively cheaper and more of them are demanded by foreign customers (mainly American). And because the value of the Canadian dollar tracks commodity prices, the commodity super-cycle downturn of the 1980s and 1990s led to a devalued Canadian dollar and soaring exports. With the commodity super-cycle going into an upswing after 2000, the Canadian dollar appreciated and exports plummeted, despite Canada’s commitment to liberalized trade.

 

The Canadian Dollar and Canadian Exports

Source: export percent of GDP from World Development Indicators (code: NE.EXP.GNFS.ZS); exchange rate from Bank of Canada via Cansim Table 176-0064.

 

Since coming to power in 2006, the Harper Conservatives have signed TAIL agreements with dizzying speed. And while they might produce great photo-ops, they have done little to boost exports. Agreements have been signed with Peru, Columbia, Honduras, Panama, Jordan, Ukraine and Korea. In 2014 an ‘agreement in principle’ was reached on the CETA and now, in 2015, the TPP. During this time, the export share of GDP shrank from 36 percent to 32 percent and the content of Canada’s exports shifted from a more industrially diversified mixture of commodities to non-renewable resources. If history is any guide, the TPP will not signal greater exports, contrary to the expectations of Canada’s punditry.

 

What impact will the TPP have on Canadian prosperity? It has been (roughly) a quarter century since Canada entered into a TAIL regime with the United States. In the 25 years to 1988, the rate of growth of business investment in fixed assets averaged 4.8 percent per year, private sector employment grew at a rate of 2.4 percent and GDP per capita grew at 2.8 percent. All three growth rates were halved in the period since 1988, falling to 2.4 percent, 1.3 percent and 1.2 percent, respectively, and the average unemployment rate increased from 7.1 percent to 8.1 percent between the two periods. The claim that ‘free trade’ is a prosperity-enhancing policy rests on shaky ground (to put it politely).

 

So even though the conventional narrative is that tariff reduction leads to heightened international trade (‘open borders’ being synonymous with ‘globalization’) and elevated trade enhances prosperity, the evidence from Canada suggests no such thing. Canadian exports fluctuate with the exchange rate and the so-called ‘free trade era’ has not led to accelerated growth. The problem with the conventional narrative is this: it’s not entirely clear that globalization is primarily about the cross-border movement of commodities. If it was about trade, then the rapid fall in Canadian exports since 2000 would signal de-globalization (and therefore policy failure). While a part of the North American TAIL regime was undeniably geared towards tariff reduction and enlarged trade flows, the other, more significant, aspect of the agreement was a shift in the property regime to facilitate the globalization of Canadian corporate ownership abroad. Trade is about the cross-border movement of commodities, whereas investment is about ownership. Theoretically speaking, trade has falls under the auspices of industry and production, whereas investment is more closely aligned with property and distribution. And by altering the property regime in a way that strengthens the social position of business, the TPP will reorganize power within and between TPP countries.

 

Before examining the globalization of Canadian business ownership, consider for a moment the changing structure of Canadian business investment in the TAIL era. Investment has two main pathways: proprietors can pay to have new industrial capacity built (via fixed asset investment) or they can buy existing industrial capacity on the market for corporate control (mergers and acquisitions). The former activity is closely associated with job creation and GDP growth. The latter activity (M&A) is wholly and only an act of redistribution—transferring legal titles between business owners—that is statistically unrelated to GDP growth. A ‘buy-to-build’ indicator captures this basic calculus open to proprietors and it is plotted for Canada in Figure 2. For each year it measures the dollar value of Canadian M&A as a percentage of business spending on fixed assets.

 

Canadian Corporate Amalgamation

Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 6, p. 33. Available online at: www.policyalternatives.ca/publications/reports/ascent-giants.

 

The narrative around the development of M&A from the late 19th to the early 21st centuries is one of a series of ‘waves’, each leading to different organizational forms and market structures. Figure 2 clearly depicts the wave-like pattern of M&A over the past century. It also depicts the increasing importance of M&A relative to investment in industrial capacity, especially in the TAIL era (post-1990). In the three-quarters of a century from 1914–1988, for every dollar spent on building new industrial capacity, Canadian business spent an average of 23 cents on M&A. In the quarter-century since 1988, for every dollar spent on expanding industrial capacity, an average of 93 cents was spent on M&A—a four-fold increase. Figure 2 tells us, among other things, that Canadian business investment has been radically restructured since 1990.

 

Figure 3 contrasts the export of Canadian commodities with the export of Canadian corporate ownership claims (both series are smoothed as three-year moving averages to ease the visual assessment). The former divides total exports by GDP and the latter is computed as the sum of dividends on portfolio investment plus dividends, reinvested earnings and profit on foreign direct investment as a percent of total pre-tax corporate profit. When this metric rises, the profit from the foreign operations of Canadian-based firms are increasing relative to the profit from domestic operations, and vice versa. This is a loose proxy for the transnationality of Canadian corporate ownership. The transnationality proxy clearly depicts the rising significance of the foreign operations of Canadian corporations. Exports and transnationality rose together from 1960 through 2000, but the relative value of exports went into reverse thereafter while the transnationalization of Canadian corporate ownership continued to increase. This is significant. It shows that globalization has not gone into reverse; it has proceeded apace, but commentators are looking at the wrong variable. The globalization of Canadian trade may be on the decline, but the globalization of Canadian corporate ownership has soared to a historic high.

 

Exporting Commodities vs Corporate Ownership Claims

Note: data for the transnationality index are interpolated between 1928, 1933, 1936 and 1938 (continuous thereafter). Series smoothed as 3-year moving averages. Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 2, p.20. Available online at: www.policyalternatives.ca/publications/reports/ascent-giants.

 

For Canada, ‘globalization’ has primary meant the internationalization of Canadian business ownership, not elevated trade. Canadian investment has been dramatically restructured in the TAIL era, with much less going toward the expansion of industrial capacity (fixed asset investment) and much more going toward business consolidation (M&A). Are these two processes, M&A and the globalization of corporate ownership, related? Figure 4 contrasts the buy-to-build indicator with the proxy for the transnationalization of Canadian corporate ownership (smoothed as three-year moving averages). The two series are tightly and positively correlated from the 1920s onward. The timing and duration of the amalgamation waves appears to have contributed to an increase in the foreign operations of Canadian-based firms relative to their domestic operations. The amalgamation waves of the 1990s and 2000s were primarily global and, unsurprisingly, the transnationalization of Canadian corporate ownership sharply increased over those two decades.

 

Amalgamation and the Globalization of Canadian Ownership

Note: data on corporate transnationality interpolated between 1928, 1933, 1936 and 1938 (continuous thereafter). Series are smoothed as three-year moving averages. Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 8, p. 33. Available online at: www.policyalternatives.ca/publications/reports/ascent-giants.

 

Note: small and large firms alike expand industrial capacity and increase employment, but corporate amalgamation is a game initiated almost exclusively by large firms. And given that the bulk of Canadian investment abroad is held by a small number of firms (ranging in the dozens) it follows that the drive by large firms to enlarge earnings compels them to acquire firms in other jurisdictions. In their theory of globalization, Jonathan Nitzan and Shimshon Bichler argue that there is a logical progression to this acquisition process, with large firms first merging in their industries, ‘breaking the envelope’ into broader sectors and then pushing up against national boundaries through the formation of nationally-embedded firms. The final ‘envelope’ being the national political economy, if large firms are to continue to expand they require a new universe of takeover targets—hence the need for a global merger wave (i.e., globalization). The flurry of TAIL agreements in the industrially advanced world since the 1980s has facilitated and secured the expansion of Canadian corporate ownership abroad. This is the driving force behind globalization. Large firms need to grow, but because they have saturated profit opportunities within their domestic sphere they require a fresh batch of takeover targets in foreign jurisdictions. This is also why most ‘free trade’ agreements actually have so little to do with trade. Their purpose is to facilitate and secure international investment (i.e., ownership).

 

If the causal sequence outlined here is correct, it follows that the internationalization of Canadian corporate ownership should be closely associated with increased power amongst Canada’s largest firms. Aggregate concentration is one way to measure the overall power of big business. Twentieth-century political economists began to notice that price behaviour in concentrated markets with a few large firms differed from price behaviour in competitive markets with many small and medium-sized firms. Institutional power seemed to explain the difference. We know that large firms are more likely to lead M&A activity than small firms. We also know that Canadian direct investment abroad is almost exclusively conducted by a small number of very large firms. Does it follow that corporate amalgamation is linked with corporate concentration?

 

Figure 5 contrasts Canadian corporate amalgamation with the concentration of corporate assets, the latter measured as the total assets held by the top 60 firms as a percent of the Canadian corporate universe. The two series are tightly and positively intertwined over half a century, which supports the contention that amalgamation is a key driver of concentration. Asset concentration among the largest 60 firms rose from 27 percent in the early 1960s to 37 percent in the early 1980s, before falling to 30 percent in 1990. Over the next decade, and in tandem with the largest merger wave in Canadian history, asset concentration increased by one-half. As of 2010, the top 60 firms accounted for 46 percent of all corporate assets—a startling degree of concentration.

 

Amalgamation and Corporate Asset Concentration

Note: total corporate assets are tabulated by subtracting the assets of government financial and non-financial business enterprises from the assets of government and business enterprises. The top 60 firms are ranked annually by market capitalization. Source: Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 10, p. 41. Available online at: www.policyalternatives.ca/publications/reports/ascent-giants.

 

So what’s missing from the TPP debate? Recognition that, despite reducing tariff’s (which are already insignificant), the agreement is unlikely to lead to heightened exports. The heavy emphasis on investment provisions, regulatory harmonization and government policy restrictions reflect the fact that the TPP is meant to secure the expansion of dominant Canadian commercial interests in the Pacific Rim. This has little to do with ‘international competition’ or ‘free trade’. And the macroeconomic outcome for Canadians can in no way be assumed to be positive, given how weak Canadian economic performance has been since 1990. Make no mistake: the TPP will deepen Canada’s experience with ‘globalization’, just don’t count on it to have a positive effect on exports, jobs or GDP growth.

 

Also missing from the TPP debate is the drive for power by large firms. Corporate amalgamation not only leads to the internationalization of Canadian business ownership; it concentrates corporate assets. Increased concentration reduces competitive pressure, thickens earnings margins and enlarges the income share of large firms. With an enlarged income share, Canada’s leading firms have distributed comparatively more resources to shareholders in the form of dividends. And with the rise of stock options in the 1980s, executives were given an incentive to divert resources into share price-inflating stock repurchase. Both developments have exacerbated personal income inequality in Canada. And because investment in fixed assets is a key driver of GDP growth, the diversion of corporate resources away from industrial expansion has put downward pressure on growth. Given the deep historical facts, the likely effects of Canada’s entry into the TPP are slower growth and elevated inequality.

 

Jordan Brennan works as an economist for Unifor, Canada’s largest labour union in the private sector. He is also a research associate with the Canadian Centre for Policy Alternatives. A more fulsome treatment of this subject can be found in his CCPA study, Ascent of Giants. Follow him on twitter: https://twitter.com/JordanPWBrennan.

Election 2015: Congratulations, Erin Weir!

The massive change dealt by Canadian voters to the seating arrangement in the House of Commons last Monday has seen the 3rd party Liberals leap to a majority government, sending the incumbent Conservatives across the aisle to the Official Opposition bench and the once-hopeful NDP back to the 3rd party seats.  In addition to the disappointment of being reduced from 95 seats to 44 seats, the loss of several talented parliamentarians  was particularly stinging for the NDP.  Debate in the House of Commons will be less with the absence of Megan Leslie, Paul Dewar, Peter Stoffler, Peggy Nash, among others.

Fortunately, this apparent new era of sunny days contains some rays of light for the NDP.  One such ray is the election of Erin Weir to represent the constituency of Regina-Lewvan.  Erin is the past chair of the Progressive Economics Forum, winner of the PEF student essay contest (twice!) and consummate PEF blogger.  Presently an economist for the United Steelworkers, Erin has worked previously for the Canadian Labour Congress and the Government of Canada (including stints in all three central agencies – Privy Council, Finance and Treasury Board).

Erin won his Regina-Lewvan by 143 votes, a squeaker of a race and a testament to the importance of a tenacious team of staff and volunteers who made sure Weir supporters made it to the polling station.

His election comes at an important time as members of the weakened NDP reflect on its discouraging electoral performance, analyze what went wrong (and right) and chart its future course, both in holding the government to account and preparing for the 2019(?) election.  A key issue that must be evaluated is the NDP’s 2015 campaign tactic of committing to balance budgets.  Although this couldn’t have been predicted at the beginning of the campaign, the Liberals clearly outflanked the NDP in this regard.  In this period of critical reflection, Erin finds himself in unique position of being both a member of the NDP caucus and a member of the Progressive Economics Forum.  Let’s wish him luck!

Election 2015: Liberals in a Hurry, Budget Policy and Time to Plan

Wow!  What an upset!   A Liberal majority!   From 35 seats to what are they projecting … 185!?

If the Liberals outflanked the NDP on progressive economic policy, it was on a single issue, that of budget policy.  With the Liberals promising three years of budget deficits to finance infrastructure spending and the NDP committing to four years of balanced budget (while introducing $15 a day childcare financed by corporate tax hikes), it seemed Lester Pearson’s famous quip had been turned on its head:  Liberals as socialists in a hurry?

Looking beyond this evening, here how’s things may play out over the next year, once the celebrations have drawn to a close.

  • October 19 to December 31, 2015: transition. Trudeau’s cabinet will named and staff, including advisors, will be hired.
  • January, 2016: The 42nd Parliament will commence with a throne speech, outlining the Trudeau vision for governing Canada.
  • February-March, 2016: A “thin” budget will be presented, probably featuring the promised cut to the “middle class” tax bracket.

What is important to keep in mind is that March 31, 2016 is the end of the 2015-16 fiscal year and the fiscal position will likely be in deficit.  This deficit is unfolding as I post this: with slow growth, including a contraction in the April to June 2015 quarter, less tax revenue is coming in, while spending, including what is paid out through the “automatic stabilizers” like EI, remains unchanged if it is not growing.   Congratulations, Prime Minister Trudeau, you have recorded your first deficit without having to lift a finger.

A consolation for Tom Mulcair, with his commitment to a balanced budget, is that he will now not have to figure how to square this circle had he formed the government.

  • March-November, 2016: Planning.

The period leading up to the fall 2016 economic update, if the Trudeau government chooses to have one, will be a critical one as it will allow the government to formulate its economic policy vision for its four years of governing.  It was in such an update in the fall 2006 where the Harper Conservatives unveiled Advantage Canada, its economic policy blueprint, that guided government policy, until the 2008 financial crisis upended that plan.  Here, we can expect to see details on the new discretionary spending programs featured in the Liberal campaign platform.

Unlike Tom Mulcair, who was rather vague about when the NDP would roll out its spending programs over the next four year, Justin Trudeau has been rather adamant about immediate public spending, such as on public transit infrastructure.  However, there are good reasons to not rush these spending initiatives, but instead take time to design and plan.  The Liberals do not need another procurement scandal like the Sponsorship imbroglio, but this could happen if contracts are rushed out the door and land in the laps of loyal Liberals.  Another consideration is that many of the Liberal spending promises, such as on infrastructure, require the cooperation of governments at the provincial and municipal levels.  Such consultations take time.  When was the last time there was a First Ministers conference?  Trudeau the Younger should avoid cues from Trudeau the Elder in this respect.

All is to say, with the intent of this new government to be more active in the economy, there are good reasons to take time to plan and get it right.  We’re not in a sharp crisis like in late 2008.  It is the longer term trend, this stagnating trend,  that needs to be addressed.

Good luck, Mr. Trudeau!

Empty Conservative Rhetoric on Pipelines

Letter to the editor in today’s Regina Leader–Post (page A10):

A Tory Stunt

The Oct. 9 photo accompanying the story “Tory candidates laud pipeline industry” showed pipe produced at Evraz stored outside the fence of another company, where this Conservative campaign stunt was held.

The story did not mention that the company concerned uses pipe imported from China, which does not support employment at Evraz in Regina. The story did correctly report, “The candidates did not make any new announcements in regards to new projects or investments.”

Certainly, the Conservative government has not done anything to prevent Chinese steel producers from exploiting unfair competitive advantages by undercutting internationally recognized labour and environmental standards. The new Trans Pacific Partnership trade deal negotiated by the Conservatives in secret during the election campaign will facilitate importing pipe from Japan and Korea, as opposed to manufacturing pipe in Canada.

NDP leader Tom Mulcair has consistently supported a west-east pipeline, subject to a proper environmental review process. Unlike proposals running west or south from the Alberta oilsands, a pipeline going east would have the capacity to transport Saskatchewan oil and keep refining jobs in our country.

The Conservatives offer nothing but photo ops and empty rhetoric about pipe manufacturing jobs. By contrast, the NDP’s fair trade policies would limit the dumping of steel from offshore into the Canadian market, encouraging the use of pipe produced in Regina.

The NDP has better policies to support good Canadian jobs and is the only party that can replace Conservatives in Regina.

– Ken Neumann is Canadian national director, United Steelworkers

Fiscal and Economic Record of Political Parties

A version of this originally appeared in rabble.

Conservative ads have focused on the NDP’s fiscal and economic record, claiming that the “NDP Can’t Manage Money”. These include another round of staged interviews with people who repeat “the NDP can’t manage money”, “the cost of their plans is huge”, that “business will be under attack”, they’ll be “reckless spenders” and “my family can’t afford the NDP.”

These lines feed into a central Canadian and media stereotype of NDP governments as reckless spenders and taxers. Meanwhile early polls reported that Canadians trust Tom Mulcair and the NDP more than any political leader and party when it comes to economic issues.  Who’s right on this issue?

I examined the records of all provincial and federal governments from as far back as consistent data are readily available (1981) against relevant major fiscal and economic indicators. The results may be quite surprising. NDP governments have been far more “fiscally responsible” overall than either Conservative or Liberal governments. They also rank on top for a number of other key economic indicators, including lowest unemployment rates, highest real wage growth, and–surprisingly–highest growth in corporate profits.

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#HarperEconomy: From Worst to … Worster?

As this marathon election campaign enters its final days, it is interesting to look back on the evolution of the economic debate during the past 11 weeks on the hustings.  The Harper Conservatives once again tried to play the “economic card,” claiming their policies are essential to Canada’s future growth and prosperity.  But this time, that argument did not resonate with voters.  Indeed, opinion polls indicate no significant gap remaining in public perceptions of the economic credentials or credibility of the three major parties. Read more »

Election 2015: Trudeau’s Court of Economic Advisors

“I don’t read newspapers, I don’t watch the news.  I figure, if something important happens, someone will tell me.”

Justin Trudeau’s surprising confession in a 2001 Globe and Mail essay (“Something I’m Passionate About”, Feb.3) raises three questions: 1)  does he read newspapers and watch the news now?; 2) if yes, does he read the Report on Business, Wall Street Journal and the Financial Times or watch BNN, CNBC, or at least CBC’s Bottom Line? ; 3) if no to question 2, who tells him when something important is happening in the Canadian economy?

This last question is particularly important as many Canadians this election are increasingly seeing Mr. Trudeau as the leader in progressive economic policy change.  Who has provided, and continues to provide the advice that has informed an election platform that includes three consecutive years of deficits, tax cuts for the middle class and immediate investments in infrastructure?  That task seems to have fallen to Trudeau’s Economic Council of Advisors, unveiled last December.

Members include: Scott Brison (former Bay Street investment banker), Chrystia Freeland (Thomson Reuters business journalist), John McCallum (former bank chief economist), Ralph Goodale (former finance minister under Paul Martin), Kevin Millligan (UBC prof and CD Howe fellow), Barbara Stymiest (former TSX Group CEO) and Frank McKenna (former NB premier and recently chair of the TD Financial Group).

Quite a Bay Street team tasked with fulfilling the Main Street dream!

Of further puzzlement is the apparent endorsement of immediate government borrowing to finance infrastructure investment by both David Dodge (who as Finance Deputy Minister, helped orchestrate Paul Martin’s “Hell or High Water” austerity budgets of the mid-90s) and Kevin Lynch (who as Clerk of the Privy Council, was an architect of Stephen Harper’s Advantage Canada and Economic Action Plans).

This time it’s different, eh, David and Kevin?

The pedigree of this court of economic advisors conjures skepticism about what further progressive policy advice will flow from this court of advisors.  For example, what’s in store in year 4 (the balanced budget year) of a Liberal government after three years of “investing now for Canadians”.  Back to 1995 for an austerity budget?  I hope someone is advising Mr. Trudeau of this political risk in an election year.

 

 

 

Election 2015: An Escape Hatch for the NDP?

In an earlier post, I sought to explain (not necessarily defend) the Mulcair team’s decision to run balanced budgets as an election campaign tactic to counter being branded by the Conservatives (and potentially the Liberals)as a profligate manager of the public purse.  Whether or not this tactic is successful will ultimately reflect in the October 19th electoral results.

Since this announcement in late August, polls have suggested the tactic may not have worked, with the NDP having being overtaken by the Conservatives and Liberals in terms of share of the popular vote.  It does not strictly follow that these polling trends will translate into the seats necessary to form a majority for any party, especially for the Liberals, who will have to gain an additional 134 sears to form the government, from the 36  seats they held at dissolution.  Another consideration is the extent we can have confidence in any  polling results given the deterioration of a reliable sampling frame with the rise of cell phone use over land lines.

However, let’s consider three possible electoral outcomes for the NDP: an NDP minority government supported by the Liberals, a Liberal minority government supported by the NDP  (minority governments being not uncommon in Canadian politics) and a coalition government between the NDP and Liberals (rare in Canadian history but can’t be ruled out).  In all three scenarios, it is plausible to imagine the NDP relinquishing their campaign promise of balanced budgets in order to cooperate with the Trudeau team.  This would provide an escape hatch from the corner the Mulcair team has seemed to paint itself into with this campaign commitment of not one, but four consecutive balanced budgets.  While a shrewd campaign tactic, the commitment makes the NDP vulnerable to three political risks: 1) the risk of alienating part of its support base, and having this contribute to its defeat on Oct 19; 2) assuming the NDP forms the government, the risk of making an economic policy error by sticking to balanced budgets, when in fact the government should have run deficits to achieve its policy goals;  3) the risk being punished in 2019 for breaking an election promise when an NDP government changes its position and runs deficits (recall George H.W. Bush’s “read my lips, no new taxes” in 1992).   The possibility of a minority or a coalition between the NDP and the Liberals  (and this is a real possibility, according to Nanos Research) would help the NDP avoid these three risks.

Beyond this issue, a larger question that has emerged (for me at least) is: what is this election about for Canadian voters?  Unlike the 1988 election campaign, where free trade became the defining issue, this election is a rapidly  moving discussion in the 24/7 news cycle, with few apparent anchors.  What about the economic policy debate beyond the “ balanced budgets vs budget deficit” issue?  Wasn’t it about how we treat refugees in this country?  What about corruption and Senate?  Climate change, anyone?  Does Canada’s reputation abroad matter?  How has citizenship and values moved up the middle?  Is the niqab the defining issue of this moment for Canadians?

First Nations Education is critical social infrastructure

Many Canadians know that the federal government is responsible for funding social services, health care, education and income supports on First Nations reserves.

Few people realize that the escalator for these transfer payments has been frozen at 2% per year since 1996, without consideration for population growth or need.

According to the Assembly of First Nations, by 2011 this resulted in an average funding gap of $3,500 per student in First Nation schools compared to per student funding in provincial schools.

Funding Gap

This operational funding gap is on top of a physical infrastructure funding gap for resources such as libraries, computer labs, or supports for First Nations languages.

This is particularly egregious given low high school completion rates, high risk of suicide, and the fact that half — 50% — of First Nations children live below the poverty line.

This should be a collective shame for Canadians and a key election issue.

Conservative Track Record

In 2014, the Conservative government made a commitment to First Nations education that consisted of $1.25 billion in core education funding over three years, $500 million in infrastructure funding over seven years, and $160 million to implement the plan. (See Budget 2014, pg. 76).

This money was contingent on the passage of the controversial First Nations Education Act (Bill C-33).  A centralization of control in the hands of the Minister of AADNC concerned many First Nations communities, the bill was withdrawn, and the money promised for elementary and secondary education was never spent.

Budget 2015 made more modest promises, committing $200 million over 5 years to “improve educational outcomes”, and keeping the $500 million in infrastructure funding over seven years. (See Budget 2015, pg. 294)

The commitment of $1.25 billion in core education funding for First Nations communities vanished in Budget 2015, and in fact had never made its way into Department planning documents because the bill (C-33) never passed the House. (Budget 2014 had earmarked the money to start in FY 2016-17).

Election 2015 Promises

The New Democrats have yet to fully detail their platform on First Nations education, but the Liberals have promised $2.6B over the next four years for education funding.

It turns out that only 900 million of this is new funding, the rest depending on Budget 2014’s commitment of $1.25B that appears to have evaporated from Budget 2015’s fiscal framework.

Liberal Fiscal Framework

Budget 2015 only shows an annual investment of $40 million for First Nations Elementary and Secondary Education ($200 million over 5 years).

If it turns out that money *is* sitting around on someone’s desk at the Treasury Board, that would be great, because this funding is sorely needed to close the education funding gap for First Nations communities. But Parliamentary appropriations documents, including the department’s Report on Plans and Priorities and Treasury Board’s Main Estimates, suggest that this is not the case.

Rebuilding Social Infrastructure

Our current debt in social infrastructure has been ignored for too long. The Federation of Canadian Municipalities has put out good numbers on the current municipal infrastructure debt, but no one has done something similar for social infrastructure.

Along with investments in early childhood education and care, repairing the funding gap to First Nations schools would go a long way to eliminating that social debt for future generations. Ask your local candidate for their party’s position, and after the election, keep pushing. It’s too important to ignore.

Too Early to Call Recession Over

Statistics Canada is reporting a 0.3% increase in monthly GDP for July, on top of a (downward revised) 0.4% increase in June. This will no doubt spark Conservative politicians, and many economists, to declare that the shallow recession which Canada experienced in the first half of 2015 is already over.

As recently as last week, Finance Minister Joe Oliver was still denying the existence of the first-half recession.  Read more »

Taking credit where it’s not due

On the election’s climate file, Prime Minister Harper has claimed that his is the “first government in Canadian history that has actually been able to see a reduction in our greenhouse gas emissions while at the same time seeing the economy grow.” This is very much a case of claiming credit where it is NOT due, from a Prime Minister who is only pretending to care about the issue amid the spotlight of the election campaign.

First, it depends on which dates you choose. If we look at Canada’s GHG emissions going back to 2005, the last full year before Harper became Prime Minister, Canada’s emissions fell by 23 million tonnes of CO2, or 3%, as of 2013, the last year for which we have data. But if we consider the impact of the 2008-10 Great Recession, we see that GHG emissions fell alongside the economy, bottoming out in 2009. Since then Canada’s emissions have grown every year between 2009 and 2013.

Second, many provinces have taken on climate action initiatives in the absence of federal leadership. The Government of Ontario, in particular, has done much heavy lifting by phasing out coal-fired power. This alone reduced Canada’s emissions by 23.6 million tonnes between 2005 and 2013 – equivalent to the national drop. Total emissions in Ontario actually fell by more – 40 million tonnes – over the same time frame, due to additional hit to manufacturing industries from the recession.

Third, federal “leadership” has been in the opposite direction of climate action. PM Harper has pushed relentlessly to enable the expansion of fossil fuel industries, including pressing for pipelines, gutting environmental protection, removing opportunities for public comment, even spying on environmental groups. Although unsuccessful in getting new pipeline capacity online, GHG emissions from fossil fuel production in the Conservative heartland are way up: Alberta’s emissions grew by 33 million tonnes since 2005, a 14% increase; Saskatchewan emissions grew by 5 million tonnes, up 8%. [Note: data tables for Canada and provinces available here]

The PM’s claim of a sector-by-sector regulatory approach is also fiction. No sectoral regulations have emerged for oil and gas, the source of 1/4 of the country’s industrial and commercial emissions, despite being promised repeatedly. In transportation, Canada is merely following the US lead on fuel efficiency standards for vehicles. The only other area of note is coal-fired power regulations, which contrast with provincial actions like Ontario’s – regs apply to new plants, but exempt existing plants from regulation until they are 50 years old. A broader recap of climate and energy policy in the Harper Decade is available here.

On the economy, the PM’s preference for small government and balanced budgets has, if anything, been a drag on growth. Going back seven years when the financial crisis hit, the PM rigidly clung to a notion of a balanced budget, which would have made the crisis worse. Only when faced with losing power to a NDP-Liberal coalition did a stimulus package get implemented in the 2009 budget. That stimulus package was under-funded, then flipped into a multi-year advertising campaign for the Conservatives, paid for by taxpayers, with Economic Action Plan signs on the ground and ads on TV.

Canada’s economy has stalled in 2015 after a period of “slowth” (my colleague Armine Yalnizyan’s term for weak growth). The latest obsession with presenting a balanced budget for the electorate has led to many cuts in recent years, again a drag on growth. The federal government has left most of the action to the Bank of Canada and low-interest-rate monetary policy, while abdicating counter-cyclical fiscal policy.

Ironically, because GHG emissions are linked to GDP growth, PM Harper’s failure to get GDP rolling is probably his best shot at claiming some credit for Canada’s GHG performance.