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.
right, forgot about the capital flight, public officials who don’t take steps to protect their citizens’ basic needs, and who won’t run their commercial banks in the public interest but who will drain away sovereign wealth for private gain…
So, yes, agreed, urgency around these measures is called for. thanks,L
More excellent work happening at the CLC.
The last point, further empowering the labour movement through legistlation to me is the most important out of them all.
Imbalance has long been the goal of the neo-liberals, with the last 30 years of death by a thousand cuts, dismantling labour, strategy. and is extremely important in restoring social balance.
We have seen the end result of the what the last 30 years of letting these powers become much in favour of the business interests, and the attack on labour has been a grand success. Union density rates traditionally have been the measure that many have concluded that the power structures are still intact and the assault on labour must continue. However, the overall density rates have indeed fallen, but it is merely the large increase in public sector unionization that has buffered the density rates. Private sector unionism is at an all time low and is quite an importnat metric for making conclusions about the success of this assault on trade unions.
Even within the union circles there is a real notion that the union infrastructure is in danger of collapse. For all the talk around the concept of globalization of labour and such, without a renewed focus on local level empowerment by legislators, we are in for some serious power imbalances that will result in even more declines in union bargaining power and ultimately membership declines.
Not sure how, after all the lessons at a social level apparently learned after WWII, within the western democracies, that we have slipped into a social comma when it comes into figuring out the equations of power sharing within our socio-economic fabric.
The new deal came about for a reason, and without a serious attempt at restoring a similar new fortress for labour, we will continue to see bubbles and upheaval and the likes of what we are going through now, may be relatively tame for what the future may hold, without renewal.
This would not be a rant, but a deeply poetic belief residing within the hallways of our costly historical lessons that somehow has been forgotten.
Profits are merely declining profits- unless one actually pays a decent wage- believe it or not, profits and wages are actually positively correlated in the long run – you need somebody to purchase your goods. Wasn’t that pretty much the shortened version of the new deal?
“Pakistan’s foreign exchange reserves will run out in about seven weeks, meaning that it won’t be able to meet external debt payments, making it bankrupt.”
In addition to other factors, investors are running to US banks, where the gov’t has got equity stakes, throwing other currencies into the abyss.
I was a little concerned that the CLC note sis not mention the issue of EI replacement rates. Surely from a macroeconomic stabilization point of view the replacement rate is as equally important as the coverage rate. Not to mention at the level of individual household finances replacement rates may be even more important insofar as the ability to cover half of debt servicing can in many cases translate into the ability to cover none of ones existing debt obligations which in turn leads to bankruptcy and an increase of bad debt at the aggregate level of the economy as a whole. If, as seems to be the agreed case, bad debt is exacerbating the credit crisis and thereby the severity of the unfolding economic down-turn there does seem to be a real case to be made for beefing up replacement rates.
Also, if lower tier gov’ts in Canada are beginning to tank, cancelling key social programs, and First Nations are in trouble, it is within the mandate of the Bank of Canada to buy bonds issued by these parties. If Flaherty yesterday was willing to guarantee inter-bank loans, surely he should guarantee bonds issued by his own citizens.
Here’s the Dept. of Justice text of the BofC Act:http://laws.justice.gc.ca/en/ShowFullDoc/cs/B-2///en
“The Bank may; …(c) buy and sell securities issued or guaranteed by Canada or any province”
Further in the BofC Act linked above, the BofC can
18.(j): “make loans to the Government of Canada or the government of any province, but such loans outstanding at any one time shall not, in the case of the Government of Canada, exceed one-third of the estimated revenue of the Government of Canada for its fiscal year, and shall not, in the case of a provincial government, exceed one-fourth of that governmentâ€™s estimated revenue for its fiscal year, and such loans shall be repaid before the end of the first quarter after the end of the fiscal year of the government that has contracted the loan;”
Presumably these could be renegotiated/rolled over at due date.
The point being that we have obscene levels of child poverty, students using food banks, homelessness, unemployment, critical needs for water infrastructure- particularly in First Nations, public health cutbacks, and seniors who need beefed up public pensions in the face of rising prices, basic needs which are turning epidemic because of the greed of financial players and deceitful complicity of goverments, and a Bank of Canada which could be fulfilling its mandate, but isn’t.
Polaris link to more voices weighing in on options, from the South: http://www.polarisinstitute.org/statement_on_the_proposed_global_summit_to_reform_the_international_financial_system
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