SFU’s Public Square program and Vancity brought former U.S. Labor Secretary Robert Reich to town on October 3, exactly a month after the Fraser Institute made the case for introducing “right-to-work” (RTW) legislation in Canada.
Noting that RTW legislation (where paying union dues becomes optional) dramatically weakens unions, the Fraser Institute argued that unions cramp economic growth, and Canada (especially Ontario) has to compete with the 24 U.S. states that have RTW legislation. The Fraser Institute’s data on the dampening effect of unionization on economic growth is widely disputed, but one thing is certain according to a World Bank study: unions reduce income inequality.
RTW legislation is just one of the forces that has created a U.S. economic system where, as Reich told a packed audience at the Orpheum, 95% of the post-2008 economic gains have gone to the top 1% of income earners. The richest 400 Americans now have more wealth than the bottom half of the U.S. population, and median incomes have been falling since 2000. This is a crazy, out-of-balance system that creates huge unintended costs that have to be borne by everyone, including the 1%.
Reich conceded that the U.S. far outclassed Canada for unequal incomes, but Canada too is trending to greater inequality. Here, the richest 1% took home almost a third of all the growth in incomes in Canada from 1998-2007, compared with taking only 8% during the 1950s and ’60s boom. According to the Conference Board of Canada, by the late 1990s, real median after-tax income had fallen to its lowest level in more than three decades, and income inequality reached a peak that has held right through to 2010.
Reich’s main point for business, also driven home in his new movie Inequality for All, was that a thriving middle class is the lifeblood of a stable economy.
“When the middle class starts shrinking or the middle class doesn’t have the purchasing power to keep the economy going, then you have a very fragile economic recovery that could easily fall into recession … a recovery that is anemic … prone to booms and busts.”
Decades of work by British researchers Richard Wilkinson and Kate Pickett (Equalitytrust.org) show that most people in any developed country would be better off with a smaller gap between the top and bottom income earners, even with the same level of overall GDP.
“Greater equality improves health and life expectancy and dramatically reduces the frequency of a wide range of social problems, including violence, incarceration, illiteracy, mental illness, drug addiction and obesity,” they write.
Ironically, social mobility is highest in the more equal countries. It is far easier to afford a university education in Norway than it is in the U.S. Like the conference board, Wilkinson points out that “high inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens.”
How do we avoid the costs and economic instability of a collapsing middle class?
The conference board says the greatest potential payback is from investment in education, from early childhood through post-secondary. That would deliver what the BC Business Council says we need most: improved productivity. Reich points out that technology is a job-killer except for those who have advanced skills and education.
To that end, he suggests offering free post-secondary education in return for 10% of every graduate’s earnings being paid into a higher education fund for the first 10 years of full-time work.
That kind of policy change will serve the economy a lot better than paying the inequality costs from getting rid of unions. •
