As income pie shrinks, Ottawa and business community talk past each other
Our collective share of the pie shrunk last year.
You might have seen reports that the trade deficit remained an expanse of misery in January. The same day that Statistics Canada released those dreary numbers, it also published its annual report on the distribution of household wealth, or, if you prefer, “Distributions of household economic accounts for income, consumption, saving and wealth of Canadian households, 2018.”
The net worth of households was $10.7 trillion in 2018, compared with $10.9 trillion in 2017; the first decrease since at least 2010, which is when Statistics Canada began publishing this particular set of data.
Collectively, we’re 60 per cent richer than we were a decade ago, so keep that in mind before you take to Twitter to vent about Stephen Harper’s austerity or Justin Trudeau’s taxing of the rich. Still, the good times rolled a little slower last year. That’s partly because the housing bubbles in Toronto and Vancouver started to deflate. But it’s also because a group of wealth creators on which the country has relied since the Great Recession had a tough time in 2018.
Statistics Canada diced household wealth into five income segments. It also divided the aggregate data into five regions. There wasn’t a lot of change in distribution. Nationally, the richest 20 per cent of households controlled about 49 per cent of total wealth, roughly the same as 2010. One shift stood out, however.
Inequality and fragile growth may be two sides of the same coin
In the Prairie provinces, the richest quintile’s share of total household net worth in Alberta, Saskatchewan and Manitoba dropped to about 56 per cent, compared with about 57 per cent in 2017 and almost 64 per cent in 2015. The share of Prairie wealth held by the four poorer groups increased by about two percentage points each compared with three years earlier. So far, it’s the richest who have absorbed the biggest blow from volatile commodity prices and the inability of Canada’s politicians to clear the way for more pipelines.
Trudeau’s government doesn’t say so explicitly very often, but the central theme of its economic policy is narrowing income inequality. Just like Jean Chrétien’s and Paul Martin’s quest to eliminate the deficit, and Stephen Harper’s attack on excessively high corporate taxes, there are good economic reasons to focus on inequality. Unfortunately, the tendency of Trudeau and his ministers to justify everything they do as necessary to help the middle class has made it difficult for thinking people to take them seriously. Team Trudeau always looks like it’s shopping for votes, even when it might not be.
Some wealth disparity is necessary to ensure dynamism; even left-wing economists accept that economies work better when entrepreneurs and other ambitious types are allowed to satisfy their greed.
But over the past decade, the economics profession has concluded that big gaps between the richest and the rest could be a cause of all sorts of chronic problems. High levels of income inequality correlate with corruption and regulatory capture, as the wealthiest outspend others to ensure the playing field tilts in their favour. Societal and political unrest also flare in places where the majority feels left behind by an elite majority.
And if all of that is too fuzzy for your liking, Jonathan Ostry, the deputy director of research at the International Monetary Fund, found a link between inequality and economic growth: Economies with narrower gaps between the top of the income scale and the bottom grow for longer stretches and are less prone to crises.
“Inequality and fragile growth may be two sides of the same coin,” Ostry, a Canadian who trained at Oxford, the London School of Economics, and the University of Chicago, says in Confronting Inequality: How Societies Can Choose Inclusive Growth, along with co-writers Prakash Loungani and Andrew Berg.
Bill Morneau, the finance minister, has been using his post-budget tour to try to coax business leaders to think about his policies in these terms. On March 28, he told an audience assembled by the Chamber of Commerce of Metropolitan Montreal that his deficit-financed “investments” in the middle class are meant to avoid the political turmoil that has roiled the United States (Trump), the United Kingdom (Brexit), France (gilets jaunes), and elsewhere.
“We aren’t there, but there is a feeling among some Canadians that they aren’t doing well,” Morneau said. The Trudeau government’s spending is meant to relieve that “anxiety,” he said numerous times. In other words, spending that keeps Brexit-like chaos out of Canada is as beneficial to the economy as a tax cut.
It’s unclear whether Corporate Canada buys it. After the speech, Morneau took questions from Michel Leblanc, the Montreal chamber’s president and chief executive officer. Leblanc asked the finance minister about eight things, and not once did he mention the middle class.
The Trudeau government and the business community keep talking past each other. The latter should recognize that the federal government’s coddling of the middle class isn’t entirely about electioneering. And Trudeau and Morneau should be wary of taking the leaders of the country’s biggest companies for granted. As David Lipton, one of Ostry’s bosses at the IMF once said, “a larger slice of the pie for everyone calls for a bigger pie.”
Trudeau needs Corporate Canada’s help to achieve his goals as much as it needs his. The data prove it.