May 12, 2009

Our credit-based economy isn't working. Despite the heroic
efforts of Canadians spend their way out of a recession,
debt is dragging them down. In the past, shoppers have done
their patriotic duty by spending until it hurts. When the
going gets tough, they pull out their credit cards and shop.

While shopping does wonders for the economy, consumers have
paid the price of debt. The average Canadian family has
negative worth - - they owe more than their assets.
Families are saddled with almost one trillion dollars in
debt of mortgages and credit cards. Savings only amount to
one-tenth of that amount.

Consumer debt keeps businesses afloat. Business
bankruptcies are down while personal bankruptcies are up to
more than 100,000 a year.

There has to be a better way. There are lessons to be
learned from the last time we entered the recession of the
1980s. We owned fewer credit cards and used them less.
Canadians finances were actually in the black. Canadians
emerged from that recession without crushing personal debt.

Also, the spread between rich and poor was less. Minimum
wages were higher when adjusted to inflation. Welfare rates
were higher. Admittedly, this recession may be worse than
the one of the 1980s but the ability of consumers to sustain
a consumer-based economy were fundamentally better.

Those fundamentals have been eroded. "Social assistance
benefits fall well below the poverty line," explains Andrew
Jackson, director of the Social and Economic Policy for the
Canadian Labour Congress. Since the 1980s, provinces have
cut welfare in response to the federal Liberal's elimination
of cost-sharing with the provinces.

"And, unlike previous recessions, any increase in provincial
social assistance caseloads will have to be paid for by
provincial taxpayers, since federal cost-sharing was
eliminated in 1994."

Employment Insurance was "reformed" in the mid-1990s.
Maximum benefits are now 75 per cent of what they were.
Less than one-half of unemployed workers qualify for
benefits. It's worse for women; only one-third qualify.

Canada enters this recession with more temporary jobs. The
proportion of workers in low-wage jobs is higher; one-tenth
of men and one-quarter of women. Growth in jobs is in the
most shaky area form of survival called "self-employment."
Precarious employment in Canada is nearly the highest in the
industrialized world, second only to the U.S.

Unions used to be stronger in the 1980s but now the
marketplace determines wages. That's good for workers in
good times and devastating when things go bad.

With a weakened social safety net, the result of this
economic crisis is increased poverty. Those lucky enough to
find work will collect reduced salaries as increased
competition for jobs places downward pressure on wages.

Falling wages could force a deflationary spiral that has not
been seen since the Great Depression of the 1930s. Lower
wages will reduce consumer spending. In a response to less
spending, retailers will cut prices in a desperate attempt
to boost sales. Lower sales will force business to cuts
wages which will, in turn, reduce consumer spending.
Deflation is grim prospect for business.

The downward spiral of the Dirty Thirties only came to an
end when governments stepped in legislate fair living wages
and industrial unions demanded better working conditions.
Unions helped resolve the crisis by providing consumers with
enough disposable income to fuel demand for consumer goods.

If this credit-based economy can't sustain the economy, what
can?

Wealth-based economy. This strategy would continue with the
current trend of transferring more wealth to the rich
through tax breaks, lower input costs for corporations
(wages, work standards), and lax regulations that direct the
flow of wealth upwards. It hasn't worked so far. If it's
true that a rising tide lifts all boats then the flood of
money into the bank accounts of the rich should have
provided us with clear sailing by now.

Wage-based economy. Instead of drowning workers in debt,
provide income that can sustain consumerism. This method,
called "Fordism," was used by the car maker to ensure that
his employees had high enough wages to buy his products.
Fordism requires an increase in minimum wages and welfare
rates.

Steady-state economy. Our current model defies reason:
despite the fact that we live on one Earth, our economic
growth depletes resources at a rate that requires many
planets. A steady-state economy would require us to live
within our environmental means, distribute wealth fairly,
and use resources more efficiently.
 

David Charbonneau is the owner of Trio Technical.
He can be reached at dcharbonneau13@shaw.ca

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