Trudeau’s Phantom Fight for the Middle Class

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Justin Trudeau’s Liberals were quick to give their support in principle to the Canada-South Korea free trade agreement when it was announced.  The Liberals had in fact initiated the talks during their last stint in government.  Their strong support for this new agreement and their support for CETA puts them at odds with Trudeau’s promise to fight for the middle class.  The jobs that are most at risk in this new agreement are good paying manufacturing jobs in the automotive sector.

Unifor estimates that up to 33,000 automotive jobs could be lost due to the agreement.  BMO Capital Markets also expects Korean made cars to quickly increase their share of the market in Canada.  This is bad news for Ontario which has continued to bleed manufacturing jobs and post sluggish economic growth.

The Liberal plan for the middle class seems to be a combination of embracing trade, promoting entrepreneurship, raising educational attainment and resource extraction.  That they are still pitching this idea over five years after the Great Recession started shows that Canada also has its share of who economist Paul Krugman calls “Very Serious People” who refuse to acknowledge economic evidence.

First, there is ample economic evidence to suggest that the combination of free trade and a decline in the number of unionized workers has greatly increased economic inequality and the hollowing out of the middle class.  Throughout the 2000s, Canada lost 400,000 manufacturing jobs.  The bulk of these lost jobs were in Ontario.  This is due to a combination of factors.  Critics are quick to denounce ideas about “Dutch Disease,” but it is not the only cause.  Canada wasn’t bleeding manufacturing jobs through the 1950s when the Canadian dollar’s value remained above that of the U.S. dollar for most of that decade.  But in an era of free trade, it is not surprising that a high dollar has led to the closure of many factories.  It has become far too easy to close up shop and move it elsewhere.  This is argued as being more “efficient,” but take a trip across Southwestern Ontario to see the effects firsthand.  It is slowly but surely eating away at the middle class.

This decline in manufacturing jobs has dovetailed with a decline in unionization rates.  Though Canada’s income inequality has not reached the levels of its southern neighbour, it has still seen an increase.  The rate of unionized workers in Canada declined to 30 per cent in 2012 down from a high of 38 per cent in 1981.  This number would be even lower had the rate of unionization of public sector workers not remained stable.  Without a strong labour movement, it becomes harder for workers to gain wage increases tied to productivity growth.  Even non-unionized workers can receive a bump from the upward pressure that unions have on wages.  There has been no talk from the Liberals about the important role that unions play in building a middle class.

Trudeau’s enthusiasm for resource extraction also has serious long term issues, and not just about the environment, but the economy too.  Proponents of Canada’s natural resources point to the many well paid jobs that the industry provides.  Those jobs are here today.  But as Alberta’s economy continues its dependence on oil production, the world is changing.  The U.S., one of Canada’s major markets continues to boost its own domestic production.

More significantly, the cost of renewable energy continues to fall and Canada lags behind on the renewable energy front.  Saudi Arabia plans on building a large solar panel factory, while China is making a massive investment in wind turbines.  While Ontario has made some modest gains on this front, and despite the protestations of free marketeers, federal and provincial governments are going to have to do more to foster the industry.

As for Alberta, its economy is less diverse than it was 20 years ago, and this has created a situation where Alberta is adding jobs only at the high and low ends of the pay scale.  This is an unsustainable trajectory.

Entrepreneurship and education sound like smart ways to increase economic growth, but the evidence simply isn’t there.  Startups have a high failure rate.  While there is always going to be a success story that produces innovation, it shouldn’t a centrepiece of an economic policy to provide middle class stability.

There’s nothing wrong with government providing reasonable supports to entrepreneurs, but it won’t create many jobs, let alone stable ones.  The fact of the matter is despite politicians from across the political spectrum idealizing small business, larger businesses actually create more and better paying jobs.  What politicians don’t mention when they say small business creates lots of new jobs, is that they are also responsible for many job losses.  It’s time to retire this myth from political discourse.

Trudeau has promoted the idea that more Canadians need post secondary education.  He says he would like to see post secondary education attainment at 70 per cent of the adult population.  A laudable goal, but post secondary educational attainment has already been trending upwards.  According to Statistics Canada, in 2011 approximately 64 per cent of Canadian adults had a post secondary education, up from 60 per cent in 2006.

Free trade is also making educational attainment pointless in some sectors.  Witness the outsourcing of IT jobs to South Asia.  Developing countries are only going to increase their funding of higher education.

There are also only so many high paying jobs even in a strong economy.  Increased education levels can certainly contribute to increased productivity (which Canada certainly could use), but the benefits of productivity gains will only benefit the middle class if accompanied by a policy of redistribution.  Trudeau has signaled that he isn’t interested in changing corporate or personal income tax rates which make redistribution possible.

There isn’t much radically different coming from the other parties in parliament.  We know what the Conservatives are doing.  The NDP has also ruled out raising tax rates on high income earners and are under tremendous pressure to accept free trade agreements to demonstrate that they are “responsible” when it comes to the economy.

What makes the Liberal position so fascinating is Trudeau’s constant banging on drums about how he will fight for the middle class.  The data suggests otherwise.  This position isn’t helped by the fact that Trudeau has also mentioned that he supports evidence based policy.  It’s time to look at who is providing his evidence.

At this point, it’s safe to say that Ottawa is sleepwalking when it comes to developing a new vision for the economy.  Hopefully, it will not take a another economic crisis to wake them up.

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Follow Gerard Di Trolio on twitter: @GerardDiTrolio

 

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