Inequality punishes Canada both inside and out

Posted on April 24, 2014 in Equality Policy Context – ROB/Commentary/ROB Insight
Apr. 24 2014.   Scott Barlow

In an increasingly global economy, economic disparity exists within nations and between nations – and the Canadian economy is on the wrong side in each case.

French economist Thomas Piketty’s widely-celebratedCapital in the 21st Century details one aspect of inequality: The widening gulf between rich and poor within nations.

In Canada, economic inequality has not reached the crisis levels of our “winner take all” neighbors to the south. But, as a 2013 Conference Board of Canada study points out, the domestic economy remains near the bottom of the range in terms of spreading the wealth.

The study gives Canada a “C” grade in terms of economic disparity – better than the U.S., U.K and Australia but significantly lagging the Scandinavian countries, France and the Netherlands.

The rich are getting richer but on an international level the relative economic growth of developed and emerging countries shows the exact opposite trend. Less wealthy emerging nations are generating a steadily rising portion of the global economy at the expense of high wage countries like Canada.

The higher wage jobs that once supported the standard of living for the North American middle class are now lower wage jobs in China, Vietnam and Mexico.

Most emerging economies are growing by leaps and bounds. In China for example, China’s per capita GDP climbed seven fold from $463 (U.S.) in 1990 to $3,350 by the end of 2012 (the last data available from the IMF).

During the same period, Canadian GDP per capita climbed from $26,983 to $35,992 in inflation adjusted U.S. dollars. In 22 years, China’s GDP per capita rose from 1.7 of Canada’s to 9.3 per cent. China is still poor by developed world standards, but their economy is clearly growing much faster and generating a steadily rising portion of global growth.

Domestic economic inequality, while politically fraught, is not that difficult to address from a policy standpoint. If the majority of Canadians supported it, taxes on the wealthy could be raised. Whatever the policy response to inequality within Canada, it would not do anything to address the export competitiveness of high-wage countries like our own. Low-wage emerging economies would still likely grow much faster than the developed world.

Ironically, the biggest policy dilemma for Canada is not inside the country where inequality is getting worse, it’s the rising wealth of the emerging markets where the gap between rich and poor countries is closing.

There are no obvious policy responses to the rise of the emerging markets and the declining competitiveness of Canadian non-oil exports. Mexico, for example, should continue to attract higher levels of auto industry investment and, if Canadian companies invested in efficiency enhancement, emerging countries could match it and still boast of lower wage costs.

The outlook for domestic manufacturing is problematic but the service-oriented economy as a whole will be able to weather the storm. Industries like technology where Canada’s high education standards provide a competitive advantage, will continue to grow.

But Canadians should remember that the important discussion of economic inequality has both national and international spheres, and successful economic policy must take both into account.

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