Op Ed on Retail Profits from Today’s Globe
Greed, gouging and bad citizenship
Special to Globe and Mail Update
October 17, 2007 at 11:34 PM EDT
What have Canadians gained from our loonie’s parity with the U.S. greenback? A more valuable currency should make the things we buy from other countries cheaper.
But, over the past five years, as the value of the Canadian dollar has appreciated against the American dollar, that has not been what’s happened. Canadian retailers have not lowered their prices â€” instead, they have used the rising dollar to gain excessive profits at the expense of consumers and the whole economy.
Their profits have soared. Return on their investment is even higher than in the booming oil and gas sector, jumping from a healthy 11 per cent to an even higher 16 per cent. In dollar terms, the last-quarter retail profits are running at $4-billion, almost twice the level of 2002.
While consumers are getting no breaks, big retail companies are not sharing these profits with their employees. In fact, they have actually cut wages. Average hourly earnings fell by 5 per cent in retail over the past year, even though an average retail worker makes 25 per cent less than the national average hourly wage.
Greed, gouging and bad citizenship are the words that come to mind.
Retailers in Canada buy many of their products in U.S. dollars or related Asian currencies, but sell them in Canadian dollars. As the exchange rate swings in the loonie’s favour, their costs fall. Lower import prices should have been passed onto Canadian consumers as their revenues rose.
The Bank of Montreal estimates that, even with the Canadian dollar worth as much as the U.S. dollar, a typical basket of consumer goods costs 25 per cent more before taxes on this side of the border. While retail prices should not necessarily be identical, there is no justification for such a huge markup.
The government also has clearly failed workers and consumers. Both the Conservatives and Liberals plan across-the-board cuts to corporate taxes, which would boost retail and wholesale profits even more.
We need answers about why profit margins are so high and prices are not coming down. We also need a higher minimum wage to make sure a fair share of the gains go to retail workers.
Lower prices would be a boon to working families. They would also allow the Bank of Canada to ease up on interest rates, taking some of the steam out of the soaring dollar and making it cheaper for manufacturers and other businesses to invest in Canada
The negative impact of high retail prices recently was confirmed again this week as the Bank of Canada refrained from lowering interest rates, as the Americans have done recently, on the grounds that inflation is too high.
For months, the Canadian Labour Congress has expressed concern that the rising dollar is undermining our manufacturing and resource processing sectors by driving up the price of Canadian-made products in foreign markets. Indeed, nearly 300,000 well-paid manufacturing jobs have disappeared during the loonie’s surge from 65 to more than 100 U.S. cents.
Lower retail prices won’t save manufacturing jobs on their own. But they would mean lower inflation. Evidence of lower inflation would allow the Bank of Canada to reduce interest rates and provide some shelter from the high value of our dollar.
Ken Georgetti is president of the Canadian Labour Congress.