1. Unfinished Business: Economic
Repercussions of Austerity
Presentation for Conference on
The Global Economic Crisis & Canadian Austerity
Ryerson University, Toronto
March 23, 2012
Toby Sanger, Canadian Union of Public Employees
2. This time WAS different
Bank of Canada Interest Rate in Recessions
25%
1981/82 recession
20%
15%
1990/91 recession
10%
5%
2008/09? recession
0%
-24 -18 -12 -6 0 6 12 18 24
Months before and after start of recession
1981/82 Recession 1990/91 Recession 2008/9 Recession
3. Post recession decline in real wages
Inflation and Average Wage Increases - large collective agreements
6%
5%
CPI Inflation Public Private
4%
3%
2%
1%
0%
1990
1995
2000
2005
2010
4. Declining share to wages, increasing share
to business profit
Income shares of economy
70%
60%
50%
40%
30%
20%
10%
0%
1981
1985
1989
1993
1997
2001
2005
2009
Wages, salaries and other income Corporate profits and business income
5. Unprecedented shift in surpluses
from households to corporate sector
80
Surpluses and Deficits by Sector
60 Corporations
Persons and unincorporated businesses
40
Governments
20
0
Billions of dollars
-20
-40
-60
-80
-100
1966
2001
1961
1971
1976
1981
1986
1991
1996
2006
2011
6. 2008/9 Great Recession was different
• First global economic contraction since 30s
• Coordinated global response
– Unprecedented monetary stimulus: interest rates
at all-time lows, extraordinary credit measures
– Far more expansionary discretionary fiscal policy
focused on public capital investment and tax cuts
– Spending largely temporary, tax cuts permanent
• Few business bankruptcies, slow jobs recovery
7. Real debt crisis at household level
Debt Ratios by Sector 1990 to 2011
160%
140%
120%
100%
80%
60%
40%
1990
1995
2000
2005
2010
Household debt to personal disposible income
Corporate credit market debt to equity
Total gov't gross debt to GDP
8. Limited prospects for recovery
• Lower interest rates can’t save us
• Housing bust imminent
• Households at record debt levels
• Business not investing
• Export expansion limited to resources
• Fiscal policy—gov’t spending—contractionary
Another lost decade, “seven lean & ugly years”
9. Government debt ratios manageable
Debt Interest Charges as a Share of GDP
12%
10%
Max (1987 to 2010)
8% Latest (2010/11)
6%
4%
2% 2.9%
2.1% 2.3% 2.2% 2.2%
1.9%
1.5% 1.4% 0.7% 0.1% 1.1%
0%
NS
BC
PEI
NB
Que
Ont
Man
Alberta
Sask
Canada
N&L
Sources: Finance Canada Fiscal Reference Tables, Statistics Canada.
10. Public spending recently at 30-year low
Total public spending as share of economy
Federal, provincial and local government
60%
50%
40%
30%
20%
1982 1987 1992 1997 2002 2007
11. Manufactured recessions
No need for austerity to balance budgets
• Federal government will soon be in a structural
surplus (PBO, TD).
• Austerity measures will slow down economy
and could another recession, as in UK, Europe.
• Fed and provincial deficits could be quickly
eliminated with a few fair tax measures
• Spending cuts and austerity measures will
increase inequality.
12. Rising inequality, slowing economy
16%
12%
8%
4%
0%
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Top 1% income share Real GDP growth (7 yr average)
13. Upcoming budgets: selective austerity
• Wage constraints, program, public
service, transfer & regulatory cuts
• Corporate tax cuts, stimulus directed at private
sector and widespread commodification of
public services: privatization, asset
sales, contracting out, P3s, competitive
bidding, social enterprise partnerships
14. Public sector wage constraints aimed at
reducing wages in private sector too
Affadavit of Paul Rochon, federal ADM
Finance, November 2010
15. Conservative class-based agenda
Attack on working people
• Selective austerity
• Cuts to social supports, OAS, pensions, later
retirement
• Intensification of contingent and precarious
work, both directly and through privatization
• Undermining labour rights & protections
• Business control over immigration, disposable
temporary foreign workers
16. Conservative class-based agenda
Strengthening power of capital
• Corporate tax cuts
• Commodification of public services:
privatization, contracting-out,P3s, SIBs, privatization
of foreign aid
• Environmental deregulation to aid faster capital
accumulation through resource exploitation
• Investor protection “free trade” agreements
17. Conservative class-based agenda
Suppressing democracy
• Elimination of federal funding for “advocacy”
activities, cuts to NGOs
• Bill C-377 to hamstring labour unions from engaging
in advocacy
• Vilification of opponents
• Elimination of constructive political dialogue
• Growth of security state apparatus
• Electoral fraud, “shenanigans”
18. How to respond?
• Class perspective 99% vs 1%
• Expose contradictions
– Failures of neo-liberalism & trickle-down
– Costs of privatization, market solution
– Fiscal: fair taxes
• Resist commodification and advance expansion
of public services
• Broaden alliances & strengthen solidarity
• Strikes & actions maintain public support
• Mobilization through democratization
Editor's Notes
Canada’s previous post-war recessions were both explicitly and intentionally caused by the federal government raising interest rates to slow down the economy and reduce the pace of wage increases, ostensibly to reduce inflation.In the two years prior to the recessions, the Bank of Canada doubled its short-term interest rates, which also pushed up medium and long-term interest rates. This hiking of interest rates to over 10% slowed down investment, increased personal and business bankruptcies and pushed unemployment to double-digit rates. In these previous recessions, the economic decline, lower revenues, higher social spending and high interest rates also caused large increases in government deficits. Coming out of these recessions, Canadian governments embarked on deficit-cutting crusades, largely through cuts in program spending also involved public sector wage freezes or constraints to “share the pain” with public sector workers .Despite the contractionary fiscal policies, the economy was able to ultimately grow coming out of these recessions because the federal government ran expansionary monetary policies. Following both the 1981/2 and 1990/1 recessions, interest rates were reduced by more than half.
The consequence of successive contractionary monetary policies for the private sector and contractionary fiscal policies, as well as direct wage suppression, in the public sector was a steep decline in the rate of wage increases.
Following these effectively orchestrated recessions and wage constraint measures, the share of the national income going to wages and salaries declined on a long-term basis as the share going to profit increased substantially.There are blips and dips of the wage and profit share during recessions, but what’s notable about this recent recession is how little corporate profits declined in total and as a share of the economy. Wages also includes income from farm operators and investment and interest incomesCorp profits plus unincorpbusines & rents income
Overgrown and out of control financial sector and household debt-financed growth masked a stagnant underlying economy. Interest rates were reduced to all-time lows, in some cases negative, contradicting previous assertions that governments had limited control over them. Despite the severe credit crunch in the private sector, there were far fewer business bankruptcies in this recession than in previous post-war recessions because of rock-bottom interest rates, extraordinary provision of credit to business and much lower corporate debt ratios. Discretionary fiscal policy was far more expansionary than in previous recessions: gov’t capital investment increased at a far faster pace than in previous recessions. In Canada, and other countries, stimulus measures were unbalanced: spending measures and those benefiting workers or households were temporary, while tax cuts for business were made permanent. Following this close brush with worldwide depression there was hope among many that it would lead to some positive structural measures to stabilize the economic system and at least marginally reduce inequalities, as had eventually happened after both the 1870s Long Depression and the 1930s Great Depression.
Overgrown and out of control financial sector and household debt-financed growth masked a stagnant underlying economy. Interest rates were reduced to all-time lows, in some cases negative, contradicting previous assertions that governments had limited control over them. Despite the severe credit crunch in the private sector, there were far fewer business bankruptcies in this recession than in previous post-war recessions because of rock-bottom interest rates, extraordinary provision of credit to business and much lower corporate debt ratios. Discretionary fiscal policy was far more expansionary than in previous recessions: gov’t capital investment increased at a far faster pace than in previous recessions. In Canada, and other countries, stimulus measures were unbalanced: spending measures and those benefiting workers or households were temporary, while tax cuts for business were made permanent. Following this close brush with worldwide depression there was hope among many that it would lead to some positive structural measures to stabilize the economic system and at least marginally reduce inequalities, as had eventually happened after both the 1870s Long Depression and the 1930s Great Depression.
Carlo & Chris Hurl put it well: “Janus” or two faced austerity”
Carlo & Chris Hurl put it well: “Janus” or two faced austerity”
Neo-liberal economics clearly failed and growth prospects limited—even proponents now questioning long-held beliefs.Class divisions are deepening and becoming more apparent.Occupy movement brought 99% vs 1% to the foreOpportunity to move beyond diverse alliance-based extra-parliamentary politicsSome, but limited potential at parliamentary level to articulate progressive alternatives: constrained by NDP caution & aim to form opposition, attract the middle groundUnions adopting more class-based language, approachBoth commodification of public services and of public goods, natural wealth. Real problem is lack of time among workers, potential activists. Students, families working ever harder, no mass army of unemployed.Momentum behind Occupy movement both expression of gross inequalities and desire to express voice by diverse people feeling disenfranchised by economically and politically.
