Data shows that widening income inequality in Canada has a direct relationship with globalization.
The chart below compares the Gini Coefficient, which is an index that measures income inequality to the volume of global exports.
This chart is informative.
Trade liberalization is good for consumers and businesses. It enables Canadian businesses to sell products and services to other countries that need them. It also provides Canadian consumers access to more choices and less expensive goods.
Over time, as developing countries become more skilled and equipped, corporations become less loyal to the developed world.
Developed countries with higher labour wages have to compete with developing countries with lower wages. This competition puts a downward pressure on wages in developed countries like Canada and an upward pressure on wages in developing nations.
That is why the middle class is growing in countries like China, Brazil, and India, while it's stagnant in countries like the US, Canada, and Western Europe.
This trend, if not addressed, could erode Canada's middle class.
A shrinking middle class will be detrimental to our economy and quality of life. We could end up with an unequal society with a very small wealthy class and a majority of working poor that could barely sustain itself never mind the economy.
If Canada doesn't recognize this shift and doesn't prepare its economy for it, the rising income inequality gap will get worse.
Canada needs to find ways to maintain economic and technological advantages; otherwise the rest of the world will buy less from us.
Transformation is necessary if we want to maintain jobs and prosperity.
Ensuring that tax rates are competitive is not enough.
Canada needs to transition its economy to a new, knowledge-based economy.
Canada is positioned to excel in specialized sectors that the world will need but very few countries have the skills and the know-how to succeed in. Areas such as healthcare services, infrastructure design-build, alternative energy, environmental technologies, data management, financial services and climate change adaption among other areas are services that the world will need in the 21st century.
Canada is well positioned to compete in such emerging sectors.
Some may argue that since globalization is accelerating income inequality, perhaps protectionism is the answer to defend our middle class.
They would be mistaken.
Erecting trade walls would hurt our economy, stall growth, remove competitive forces and keep consumer goods prices higher than they need to be. It would limit the ability of our businesses to sell to other countries.
For a relatively small country that relies heavily on exports, protectionism would negatively affect millions of jobs.
Instead, we should harness our economic, educational, social and cultural strengths to differentiate what we can offer the world.
Canada needs to prepare our education system for the new economy; create incentives to nurture emerging specialized industries and reform our public policies to encourage investments in those areas.
We can learn a lot from what happened to Blackberry.
Blackberry invented the idea of receiving emails on mobile phones. It became a global leader for smart phones. Eventually other companies emulated the concept and improved on it. Blackberry was slow to adjust and stay ahead of the curve while other phone companies took over. Now the future of Blackberry as a dominant market player is in question.
Canada needs to avoid falling in a similar trap.
The uneven growth in income is a leading indicator letting us know that we are at risk of falling behind.
If there is ever a role for the government in the economy, it is under circumstances like these.
While the private sector can play a role, most corporations are indifferent to geography (not withstanding transportation costs). If Canada loses its economic advantage, they can move somewhere else and take their jobs with them.
It is our government that needs to play a visionary leading role in helping steer our economy to maintain a competitive global edge.