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Fixing Income Inequality in Canada

06/04/2013 08:24 EDT | Updated 08/04/2013 05:12 EDT
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The economic collapse of 2008 changed much in our world, and it had a devastating impact on many people at home and abroad. But one of the few silver linings is the spotlight that it put on an economic trend that was poised to create lasting damage in Canada: income inequality.

The impact of the recession hit just about everyone, but those on the lower end of the income scale were hit the hardest, with job losses in the trades and services sectors as people stopped spending. In addition, many lower-income individuals borrowed against inflated assets to keep up, or dipped into their savings only to find half of it disappear when markets tanked. As we all know, the recession shattered the lives of many.

Why Income Inequality Matters

Why should we care about income equality? Many see it as a fairness and social justice issue, and there's merit to this. Income inequality is directly correlated to higher levels of child poverty, poor health, and shorter lifespans. But there are other concerns that go beyond social justice and strike at the heart of both democracy and greater long-term economic health.

One of the key concerns is that income inequality undermines the democratic process that our country was founded on. As the middle class shrinks and more people fall to subsistence living levels, they spend more time on their own survival and far less time participating in any form of democratic debate. They "disengage" from the democratic process -- and leave the decision making to others, without any direct input.

We're also seeing a reassessment of income inequality from an economic standpoint. The World Economic Forum's Global Risks 2012 report surveyed experts from around the world on what global risk they thought was the most likely to occur over the next 10 years. "Severe income inequality" topped the list, tied with "chronic fiscal imbalances."

And many organizations -- from The Economist magazine to the International Monetary Fund -- are questioning the notion that income inequality and economic efficiency are trade-offs. Instead, new thinking is suggesting that greater income equality may be a prerequisite for sustainable long-term economic growth.

Where It Started -- and How We Can Fix It

The mantra of economic efficiency at any cost began in the 1980s with the conservative policies of Margaret Thatcher, Ronald Reagan, and Brian Mulroney here in Canada.

With globalization being the holy grail of efficiency, it became a race to the bottom as international capital sought the lowest cost and the lowest wages. The result in Canada and many other countries was the closing of industries, the gutting of union organizing through new laws that attack unions and limit their ability to operate, and the gradual rise in income inequality since 1990. Canada now ranks 12th out of 17 first-world economies for income inequality, and were given a "C" grade by the Conference Board of Canada.

How do we reduce this trend and reap the long-term rewards? There are a number of potential solutions, but I'll touch on three.

First, we need to re-think the "lowest possible cost" globalization mantra. International trade is here to stay and can yield many benefits, both in Canada and abroad. But the emphasis should be less on "free trade" and more on "fair trade," so that people from all walks of life can benefit. The recent factory collapse in Bangladesh is just one example of what can happen when the lowest cost trumps everything.

Second, we need to strengthen the rights of trade unions to organize in the new digital economy. The power balance has swung too far -- and we need to better empower trade unions in their fight to bargain for fairer wages. For those not in a trade union, we need to raise the minimum wage to reduce the incidence of subsistence living.

Third, we need to examine how we can use public policy for all projects at all levels of government to advance the economic prospects for those least well off. For example, in Toronto, when we decided to reinvest in one of our poorest neighbourhoods, Regent Park, our procurement policies stipulated that 25 per cent of jobs related to the rebuild go to local residents. It was an effective way of ensuring that greater economic benefits flowed directly to the community that needed it most.

Put the Income Inequality Issue on Your Radar

The consequences of growing income inequality are real -- and with our economy slowly recovering, this is an ideal time to push for change that addresses this issue. It's smart, long-term thinking that can benefit us all.

This post originally appeared on TVO's The Agenda.

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