CLC Response to the Economic Crisis
This call for government action was the result of deliberations at yesterday’s meeting of the CLC Executive Council, and reflects prior discussions among union economists. This is the summary. I’ll post the long version after it has bene translated and posted to the CLC web site.
CLC Response to the Economic Crisis
Global capitalism: on the edge of the abyss
Dramatic recent events have thrown into sharp relief some chronic and long-standing problems of our global and national economic system: an over-developed financial sector which has fuelled rampant speculation rather than productive, job-creating investments in the real economy; huge returns for senior executives and corporate insiders while the wages and the incomes of working families have stagnated; rising household debt instead of a fair sharing of productivity gains with workers; over-reliance on the export of raw resources; a deep crisis in our manufacturing and forest industries; and massive global financial imbalances driven by unbalanced and unfair trade.
Even heads of government of the largest advanced industrial countries are now saying that the age of deregulated â€œneo-liberalâ€ global capitalism is over. Financial collapse has led not just to the discrediting of an ideology, but also to a major reassertion of the role of governments in maintaining systemic financial stability. What remains to be seen as we await emergency international meetings is how far the re-regulation of finance will go, and how much more profound will be the needed re-assertion of the role of governments.
A co-ordinated international response
Future financial crises will be avoided only by strengthening government regulation of the banks and other financial institutions, and by extending the scope of government regulation to include hedge funds and private equity groups. Leverage (the use of borrowed funds) must be both limited and closely monitored by regulators to reduce excessive risk-taking and to forestall future asset bubbles. Calls for self-regulation must be rejected. There must be regulation of credit rating agencies to prevent conflicts of interest.
An international framework is needed since re-regulation at the national level would soon be undermined by capital moving to the least onerous locations. Governments should be encouraged to restrict or ban capital flight to locations which do not agree to abide by a new set of rules.
Governments must follow up with further concerted cuts to interest rates.
A small transactions tax should be levied on all securities trading, including the trading of commodity futures, to discourage short-term speculation in financial assets and to raise government revenues.
We also need a co-ordinated fiscal stimulus. Those countries, including Canada, which have no or very low deficits and paid down government debt should do the most.
China and other countries running large trade surpluses must expand demand at home by increasing public investment and by allowing free trade unions to grow and function, while helping shore up the global financial system so that the U.S. can grow its way out of a recession through higher exports.
Financial Re-Regulation and Action at Home
More government assistance to the Canadian banks should be given only in return for an equity position, with a view to increasing the power of the federal government to regulate and supervise the banks on an ongoing basis through an internal, ownership-based window on the industry.
While it is claimed that the large Canadian banks are strong and well capitalized, this should be confirmed through a thorough audit.
As needed, the federal government must be prepared to guarantee operating lines of credit to viable companies which cannot obtain credit from the banks. Consideration should be given to creating a public investment fund which would take equity positions in companies seeking funds for long term investments.
Moving forward, the Bank of Canada should be given the power to impose asset-backed reserve requirements on the banks and near bank lending institutions so as to slow the growth of asset bubbles in areas such as housing, commercial real estate, and equities without raising overall interest rates.
It is a myth that Canada has not experienced a housing bubble. CMHC must be given access to government guaranteed funds to be drawn upon as needed to refinance distressed mortgages at lower rates in return for a partial equity stake so as to forestall any wave of foreclosures.
In addition to reviews by the Competition Bureau, all major corporate mergers and acquisitions, including leveraged buyouts and private equity purchases, should require government approval, preceded by an open public interest review of the impacts on real investment and employment.
Fair Solutions to the Crisis
Executive compensation in the form of stock options must be restricted to reasonable amounts and limited to long-term gains in share values. A maximum limit should be placed on senior executive compensation which can be deducted for corporate tax purposes. Capital gains should be fully included in taxable income, and there should be a surtax on very high incomes to help pay for the costs of bail-outs.
The question today is not whether we will see large job losses and rising unemployment in Canada, but rather how deep and prolonged the crisis will be.
The federal and provincial governments must maintain current public programs, services and employment. It would be folly to take the Herbert Hoover route of slashing spending as we fall into a Depression. Increases to public investment are far more potent job creators than tax cuts, since most forms of public investment are labour-intensive, and draw heavily on Canadian as opposed to imported inputs.
Governments should provide an immediate emergency fiscal stimulus to the economy of at least $10 billion over each of the next two years. Such a program mainly directed to energy efficiency and renewable energy projects including building retrofits and public transit would create at least 200,000 jobs.
Immediate priority should be given to public infrastructure and affordable housing projects which would offset the growing construction slowdown and could be rapidly implemented. Control of public infrastructure must remain within the public sector. Funds which have already been allocated to basic municipal infrastructure and to energy efficiency, renewable energy and green investments should be fast-tracked and increased, and planning for major public transit projects and passenger rail and similar projects should begin immediately.
We need sectoral economic strategies to rebuild our industries, particularly the hard-hit manufacturing and forestry sectors. Further corporate tax cuts should be cancelled and replaced by direct government support for new private sector investment in machinery and equipment, research and development and training.
Taking advantage of the opportunities likely to be opened up by President Obama, NAFTA and other unbalanced one sided trade deals must be renegotiated to promote labour rights and higher environmental standards and to remove investor rights provisions. Measures must be taken to reverse our large and growing manufacturing trade deficit with countries running large trade surpluses.
The federal and provincial governments should launch significant improvements to public services which people need, and which will also save and create new jobs. We need major investments in child care and early learning, home care and long-term care and high quality public education. Post-secondary education and training programs must be expanded to help upgrade the skills of laid off workers.
Protecting workers and working families in a crisis
a. Employment Insurance (EI)
EI is a critically important program for Canadian workers, especially in tough times like we face today. Laid off workers obviously need adequate benefits to support themselves and their families while they search for a new job.
Compared to when we hit previous recessions, our EI program will leave many Canadians out in the cold, unable to qualify for benefits. And it stands on much shakier financial ground.
With an accumulated surplus of more than $50 billion in the EI Account, the federal government must maintain and increase benefits, and also expand spending from the EI Fund to pay for labour adjustment and training programs.
The financial crisis, combined with a major recession, threatens to produce a severe pensions crisis as companies in major difficulties face large pension fund deficits. As in other countries, notably the U.S. which guarantees pension benefits of up to about $50,000, Canadian pensions should be backstopped by a national pension guarantee fund. Revenues from a financial transaction tax should go to this fund.
Pension funds must be more closely regulated to limit investments in hedge funds, private equity and other risky assets.
Public pensions are the fundamental basis of income security in retirement. Old Age Security benefits must be raised immediately.
Building the labour movement
The roots of this crisis lie not just in the excesses of finance, but also in the fundamental imbalance of power between workers and employers here in Canada and around the world which has been fostered through restrictive laws.
We must ensure that growth is driven by the flow through of gains from greater real investment and higher productivity into higher working class living standards. When people earn decent wages, all parts of the economy do well. As was shown in the 1930s, this will be achieved not just through more government intervention in the economy, but also by building strong unions and increasing the bargaining power of labour. Governments must facilitate new union organizing through card check certification, first contract arbitration and anti scab legislation.
The labour movement must be consulted and our voice must be listened to by governments as we deal with this crisis.