Economic crisis no excuse to abandon anti-poverty fight

Posted on October 21, 2008 in Governance Debates, Inclusion Debates, Social Security Debates – Opinion – Economic crisis no excuse to abandon anti-poverty fight: Better benefits, housing and wages all can act as stimulants to revive our staggering economy
October 21, 2008. Arthur Donner, Mike McCracken, Armine Yalnizyan

The unprecedented volatility of global markets and the extreme fragility of giant financial institutions are casting long shadows on Canada and Ontario.

As Finance Minister Dwight Duncan gets set to release a fiscal update, Ontarians will be asking: What can our provincial government do to blunt negative effects on our own economy?

Taking action on poverty reduction will be crucial for our ailing economic fortunes.

In fact, just one year ago, Ontario Premier Dalton McGuinty spoke directly to the economic vulnerability many in his province feel when he promised to implement a comprehensive poverty reduction strategy.

But now the premier is signalling a retreat on the timing for that goal, citing a slowing economy, insufficient provincial revenues and lack of federal support as excuses for inaction.

As economists, we believe the exact opposite is in order. Now is the very time to act – and there are several well-founded economic reasons why we cannot afford to delay action against economic insecurity.

For starters, the present situation demands immediate counter-cyclical measures that can trigger an economic stimulus. This stimulus package should look to our economy’s greatest foot soldiers: local consumer power.

Worldwide, the consumer is the biggest economic driver in the economy, accounting for more than half of final domestic demand in Canada. Every time a recession has loomed, sustained consumer spending has either kept the economy going south or it has been the source of strength for recovery.

However, there is good reason to be concerned about consumer spending in the face of rising unemployment. Employment Insurance benefits and other income supports have been significantly eroded in the past 15 years.

Restoring their reach and purchasing power, together with investments in benefits for low- and modest-income Ontarians, is one way of stabilizing spending during bad times. The other is to ensure that work pays a living wage.

These measures counteract downturns because lower-income Ontarians spend on local economies first. That helps local businesses stay afloat during lean times.

Developing housing that low-income Ontarians can afford during a downtown is another reason why a poverty reduction strategy makes good economic sense.

In Ontario, the housing market is weakening, reflecting falling prices on homes and flat incomes of many potential buyers. An investment in residential construction that creates affordable housing options can keep thousands of middle-class workers employed.

Acting today on affordable housing can provide a much-needed boost to the economy during bad times while reducing economic insecurity and building assets for the long term.

But investments on poverty reduction are important not just because of the need for a short-term fix. Acting on poverty reduction is also smart economics because of what it means for Ontario’s future prosperity.

One of the fundamental tenets of economic thinking is the return-on-investment principle. And there is overwhelming evidence that investments we make in poverty reduction today will pay huge returns tomorrow.

Take education. Every dollar spent on early childhood education – key to school success for all children – eventually returns $9 to the economy over time. And yet the vast majority of poor children in Ontario do not have access to early learning and childhood care.

It’s a lesson about poverty prevention that we ignore at great peril because the child we neglect today pays the price in later years. For instance, a Grade 10 student who drops out of high school loses out on more than $120,000 in lifetime earnings.

This kind of lost potential has repercussions for all of us.

As McGuinty has repeatedly stated, poverty reduction is an essential strategy in ensuring Ontario can compete, and win, on a global stage.

He is right. It is the job of governments to look beyond the immediate crises and plan for the challenges that lie ahead.

The mass retirement of baby boomers will slow labour force growth substantially and create a great demand for a highly skilled, well-educated and productive workforce.

But poverty robs people of their health, their hope, and their potential. We cannot afford such losses. Ontario, and Canada, needs all hands on deck now to prepare for our future.

The best and cheapest poverty reduction strategy is to move swiftly with investments on affordable housing, education and training, early learning and child care, public transit, income supports and jobs that pay living wages.

Retrenching in the face of stubbornly high rates of poverty merely defers even larger costs to the taxpayer down the road. As the mechanic always warns us: “You can pay now or you can pay more later”.

We urge the government of Ontario not to shrink from this opportunity to strengthen the provincial economy by investing in a poverty reduction strategy now.

The sooner we act, the sooner everyone benefits.

Arthur Donner is a Toronto-based economic consultant. Mike McCracken is CEO of Informetrica Limited. Armine Yalnizyan is a senior economist with the Canadian Centre for Policy Alternatives


In the Nov. 29, 2007, throne speech, the McGuinty government made an explicit commitment to develop a “focused” strategy during its second term to reduce the incidence of poverty in the province:

To truly succeed as an economy, and as a society, we need everyone at his or her best.

That’s what opportunity for all is all about.

It does not mean more prosperity for some and more poverty for others.

Study after study … has underlined that we all share a responsibility to work toward lifting more families out of poverty. Your government will continue to assume its responsibility to provide these families with better opportunities.

A new cabinet committee will begin work developing poverty indicators and targets and a focused strategy for making clear-cut progress on reducing child poverty.

The strategy includes a plan that would provide dental benefits to low-income families, and builds on measures already in progress. These include boosting the minimum wage to $10.25 by 2010, increasing child-care spaces and providing more affordable housing. Your government will also fully implement the new Ontario Child Benefit, raising it to $1,100 per child.

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