Misaligned Priorities

So Industry Minister Tony Clement is now insisting that cuts to workers wages will be a condition of any bail-out package for the auto industry.  This comes after an economic statement that was going to remove the right to strike and legislate public sector wages, and before a budget that could also include wage cuts or constraints for workers.

I don’t recall constraints on executive salaries and compensation being any part of the $100 billion plus in support that Finance Minister Flaherty promised to Canada’s banks and financial industry (see page 64 of the economic statement for a summary of some of these).  This is despite the fact that constraints on executive compensation were a highly publicized part of the U.S. financial sector and auto industry packages.

Not only is this ongoing attack on workers’ wages patently unfair, but it also doesn’t make economic sense. 

Even Bank of Canada governor Mark Carney stated very explicitly in a speech a year ago that “misaligned incentives”, including those in financial institutions, were one of the main causes of financial market turbulence and excessive risk taking that caused the current financial crisis.  

With this type of endorsement from someone who has been in that industry, it seems to me that controls on the compensation of executives and finance industry professionals should be a major part of the type of the reforms that are now necessary.  This needs to include an ending of the tax breaks for stock options and capital gains (costing at least $10 billion a year in lower revenues) that further encouraged speculation and short-term profit taking at the expense of long-term productivity. 

And it’s not as if Canadian CEOs are suffering: the average compensation of the top 100 was over $10 million in 2007, equal to 259 times the pay of the average worker.

On the flip side, cuts and further constraints on workers wages, which have seen very little real increases in the past decade, will only harm the economy by eroding confidence in the economy.  Over the last decade, we’ve seen a massive and unprecedented shift to increasing indebtedness of households in Canada, while corporations have racked up hundreds of billions in surpluses as a result of high profits but low rates of capital investment.  We’re not going to get much of an economic recovery until and unless workers and households get some of the benefits.

10 comments

  • I’m starting to see other hints that the Conservatives may also be thinking about trying for rollbacks on federal public service salaries, pensions and benefits.

  • You can bet your bottom dollar Mr. Clement is trying to get this out the door well before the budget. How can he say the tories are trying to help the auto sector by creating more deflationary pressure.

    I like the tories approach to a market based solution. THe first thing out of the interventionist gate (with regard to this “new less harsher kinder gentler “”post coalition”” threat tories”, is lets bash the workers again.

    It is unrelenting ideology based fervour by a very scary ultra right wing government pretending not to be reformed. How about just reform iinstead!

    From bashing Ottawa transit workers over the holdiays with a mandated vote that would have undoubtedly initiating a decertification this local union, to now this hit on the CAW, I cannot see how this is supposed to be helpful. So what now Honda cuts its wages, Toyota cuts wages further, US big 3 cuts wages to match and then Mr. Clement in all his intelligence forces another round of cuts on the CAW.

    How is this helping? We need somebody with a capacity to have a lot bigger picture in his head. This is nothing but follow the leader right off the edge.

    It seems as though the way through this economic challenge is to beat the hell out everybody that have the least ability to adjust, on the backs of workers.

    Just look at the banks for an example. Rates again will go down and already the bankers have their mouth pieces out defining why they can’t let rates follow. Apparently according to a banking expert, it is not the law that the banks have to follow the trend setting rate.

    Yes and it is also not a law to have banks consistently pad their profit rates on the backs of working people and the elected governments ability to set economic policy.
    Damn it, didn’t flaherty just give them all 50 Billion dollars.

    How about the missing money from the EI surplus, the 50 billion that disappeared could be thought of just recently being transferred to the banks.

    Must be nice to have lots of money and lots of political pull and have a bunch of reform party libertarians at the helm doing all you dirty work. This stuff has got to stop, otherwise you are going to see a backlash of unprecendented proportions, and I am not talking at the elections ballot boxes, most of the people these economic times are effecting the most, don’t vote, and this due to apathy. Eventually apathy transforms itself into some other forms of non apathetic emotional reactions. Its not all that complex, however the transformation of the double movement is an intersting read these days. Potentially Polanyi will become a best seller again.

    At least I hope,

    I got to get myself a new copy mine is worn out.

    paul

  • thanks Toby. Cuts to wages would be a disaster at this time. What part of ‘stimulus’ does Clement not get?

    It is one of my sincere hopes that Tony Clement as a cabinet minister will be swept into the dustbin of history in the near future. He has personally wrought more destruction on the health of persons and the economy than most in the clique of Canadian extremists.

    Along with controls on executive compensation in the budget, and an ending of their tax breaks, we need a good speculative transaction tax. The latter may help us track the nefarious behaviour which is draining the lifeblood of the economy, as well as provide a minor payback for the havoc these freeloaders have wrought in recent years.

    As you and others have noted in this blog, the money could help provide funds for the public income supports and public services which are foundational for a solid society, and need to be rebuilt for the economy to even begin thinking about a recuperation.

  • Cheap labour conservatism strikes again. If these guys had their way Canadians would be envious of Chinese workers who only make ten bucks a day.

  • Everyone gets free money except the workers. Of course, they’ll just spend it on beer, or a night out on the town, or food, or a new car, or housing, or their kids education. It won’t really stimulate the economy like a CEO hiding money off-shore in a Swiss bank!

    Sigh…

  • just to clarify, Toyota announced wages cuts just a week and half ago. So what do we cut to, the previous Toyota wages, the current. Do we factor in just current costs? Or do we use the ass backwards measure of including legacy cots into the equation that seems to be the preferred methodology of most worker bashing right wingers.

    So if we use the legacy costs, we basically force our workers to accept wages cuts because our countries in North America were the first to invent the automobile and have autoworkers who retired on the account.

    How we compare companies without a very intensive study into wage costs comparisons. Unbiased wage cost comparison. I am pretty sure they do not exist. And if you are going to use the plany cost of the foreign greenfields, then you had better start trying to establish a methodology that tales account for different social standards within each country.

    Wage costs are not what the problem with the car companies. How about the car dealers. Any mention of the millionaire salaries of a whole pile of dealer owners strewn across the Canadian map.

    And executive salaries like Toby mentioned. This should ne enough to inform the liberals and the NDP to start sharpening up their coalition speeches, as it is time to jettison these tories, before they jettison the economy of the country and good proportion of our productive assets.

    What is to be done? Precisely!

  • just a minor point here, Robert and Paul’s comments here twigged the thought, and while they have correctly couched the terms ‘cheap labour conservatives’ or ‘these tories’, it reminded me that there is broad spectrum of ‘conservatives’…

    I think that, with the economy in mind, there are many ‘conservatives’ who are appalled at the recent behaviour of private financiers, and the shenanigans of the hedge fund players, etc. who have turned current, and future, useful companies into a farce as they whistle away billions in their back pockets.

    Politicians who facilitate more of the same, who fail to implement the necessary policies to regulate finance, are not seen by sensible conservatives to be conservative. They are seen to be irresponsible and untrustworthy.

    It’s one thing for the Harperites to have first ignored then down-played the recession, while helping along the deregulation process, eg. with the mortgage insurance financiers who spun unaccountable debt recklessly. But to continue the process even now with further gifts to said casino players, and not a hint of restraint or even accountability for those speculators !?

    that’s not conservative, liberal, democratic or even reformist. it’s just plain ridiculous.

  • My understanding of collective bargaining economics, is that union wages are generally a market wage plus the worker’s bargaining-induced share of the profits they helped generate. But the “profit share” is embedded into a wage. The challenge comes when profits slip into the negative, which tends to result in a round of concession bargaining.

    The CAW has done a good job of rejecting concession bargaining. However, sometimes it’s the right thing to do. Remember Buzz Hargrove recommending that Canadian Airlines take that horrible package they were offered, weeks before the company collapsed? Turned out Buzz had it right and the members had it wrong. The key principle should be that concessions should be agreed to at the bargaining table in a round of free collective bargaining, not through some kind of royal decree.

    Compare to the Social Contract talks, where many people liked Rae Days, and in any other context it’s not necessarily a bad thing. Rather, the great injustice was the legislative coercion.

  • Yes, and if the liberals vote for the con budget they are essentially agreeing with bash union workers.

  • I agree Stuart with your take on necessary concessions however I find this situation fundamentally different for many reasons. It also is quite a dangerous precedent for the government as we get situated on this slippery slope.

    Competition on wages is not a war that anybody can win, will be my 1 dimensional response for giving this case a different notion. Given more time I would argue others as well.

    Companies cannot react to this dramatic downturn by attempting to compete on wages. It is a lose-lose for all. Public sector included, you cannot turn this economy around by cutting wages. It is the antithesis right now, and it is pulling us ever more into deflation.

    We need ways to fill those pay packets right across the board. Cutting back in this sector and then that sector, will only result in eventually spreading to other sectors.

    I they do not cut wages what is the result, capital flight? I think not, we need the government to use other measures to save jobs and stimulate.

    However as you indicate, the royal decree is quite problematic and takes me in a totally fresh direction of critique.

    That is just a sign of more worker bashing to come. It will interesting holding a flashlight up to Harper and Obama policies.

    On this historic moment tomorrow, Canadians I hope feel some optimism towards change.

    Obama may actually save Harper’s ass, sad as that might be, but we could see the American stimulus save our economy. No thanks to HAprer and his libertarian economic sandbox called the Canadian economy.

    Am I pissed today? Yes, this Ottawa city bus strike and these tories trying to push workers around locally has made me see the tories in their true colours. The ATU local 279 has taken such a beating from the local right wing mayor and his Harper friends it is pathetically and errily foreshadowing a Tory majority.

    I have been working the phones for a week and I must say its a tough fight. When one side controls the media, the power brokers at multiple levels, and gains public support it is such a long row to hoe for local labour. Harper and his labour minister bandying about labour legistlation like it was toilet paper disgusts me the most with these tories. There is a long long history that was fought for and we ain’t about to give it up without a long battle.

    Sorry I am ranting.

    Go ATU 279 go!

    Now cheering.

    paul

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