Could an NDP government grow Canadian productivity?

Posted on in Equality Delivery System

TheGlobeandMail.com – ROB/Commentary
Aug. 20, 2015.   Ake Blomqvist

Ake Blomqvist is adjunct research professor at Carleton University and scholar at C.D. Howe Institute.

Rising economic inequality has emerged as a major concern in Canadian politics. At the same time, our economic growth has been lagging growth in the United States and many other countries, largely because of weak labour productivity growth.

How will these issues feature in the upcoming federal election? The question is particularly important given that the New Democratic Party, which has never held power federally, has by all indications emerged as a serious contender. Would an NDP government be able to deal effectively with the twin problems of inequality and lagging productivity growth? The answer depends critically on how an NDP government would be influenced by the labour movement, on whose support it has relied heavily in the past.

Factors such as globalization and technological change have been major contributors to rising inequality. As China, Mexico and other low-wage countries have become industrial powerhouses, many of the manufacturing jobs that supported middle-class Canadian families have disappeared. Advances in robotics and information technology reinforced the trend, and eliminated lots of employment in the financial sector and elsewhere.

But technological progress and globalization have also been major sources of growth in productivity and average incomes. Herein lies the dilemma. When productivity rises because of factors such as new technology or expanded international trade, it may have harrowing effects on the workers who lose their jobs in industries that decline. If the losses of high-paying jobs in these industries are not matched by good jobs in expanding sectors, the result will be higher inequality, perhaps for a long time.

Historically, the labour movement has been a strong advocate of social policies that have led to more equality. In Canada, it played a major role in establishing medicare, employment insurance and the public pension system; it also supported programs, such as social assistance, that directly target the poor – and higher income taxes to pay for them. There is every reason to believe that if an NDP government were to come to power in 2015, it would continue in this vein and also look at new initiatives, such as publicly funded daycare. That is, it would favour policies that reduce the inequality of income after taxes and transfers.

Although the labour movement supports progressive social policy, its main focus of necessity is on measures that affect the labour market. Because many union members are in declining sectors, labour has often been found defending protectionism against free trade or opposing competition from producers that use new technology.

Policies that protect jobs in declining sectors may reduce inequality, but they also reduce productivity growth and hence the long-run increase in incomes. And they can hurt young workers. In places where unions have pushed for rules that make it difficult and costly to terminate existing employees, firms have been reluctant to hire new workers on regular contracts. The result has been a “dual labour market” in which those who already have jobs are protected, but young workers are unemployed or on short-term contracts.

In several of Europe’s most advanced welfare states (the Scandinavian countries, Britain during the Tony Blair era), its supporters have recognized the benefits of labour market flexibility, and labour has focused its political activities on programs that make it easier for those laid off to find new jobs or support the incomes of those who are between jobs.

In other countries where it has concentrated on strengthening the position of unions and protecting workers against layoffs (France, Italy, Greece), growth has been slower and the youth unemployment problem has been more severe. In preparing to govern, the NDP would do well to pay attention to these lessons from Europe.

The role of the labour movement in an NDP government also is sensitive because of the strong role of public-sector unions in Canada. Workers in the public sector essentially bargain with taxpayers, who have nowhere to turn when generous settlements drive up costs. And many unionized workers in the public sector are well paid, so policies that strengthen their position will not lessen economic inequality.

So, which face of the labour movement will emerge after the election? Will it be the side that recognizes that flexible labour markets are a precondition for rising productivity, and that the best way of dealing with inequality is through generous social programs that help those at the bottom of the income scale and the unemployed?

Or will it be the unyielding defenders of the “insiders” (those who already have jobs), who view unions as tools to get more for their members, regardless of the consequences? The outcome of the election may hinge on what most Canadians think the answer is.

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2 Responses to “Could an NDP government grow Canadian productivity?”

  1. Pedro says:

    Okay, so May and the Greens have never:A: Been eltceed, or eltceed a member, federally or provincially. B: Formed a provincial or territorial government.C: Come within striking distance of electing, um, ANYBODY.D: All of the above. I don’t know. I could take or leave Elizabeth May… but the TV networks should leave her. In a word… Irrelevant! And five leaders on a debate? C’mon… too much. Let the Greens elect first, debate later. An late converting MP after a year as an independent does not a Green MP make.

  2. The suggestion that union protectionist practices create, or even contribute to youth unemployment is just not tenable. Simply put, youth unemployment and so-called “flexible labour markets” have expanded as union membership has been in decline. Furthermore, these “flexible labour markets” are driven by low wages, insecure and often unsafe working conditions, which have been allowed to flourish in a fragmented and insecure labour market. What the author understands as “higher productivity” has been largely achieved at the expense of worker exploitation in locations where labour rights have been eroded, or have never existed. The greater equality that workers and their unions fought meant greater redistribution of company profits, and more money for the producers of wealth to spend and grow the economy. This is the route to sustainable productivity.

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