Modern free trade era produced slower growth and greater income inequality: study

Posted on February 20, 2015 in Debates

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PolicyAlternatives.ca – newsroom/news-releases
February 9, 2015.

OTTAWA—The defining features of the Canadian economy during the NAFTA era have been slower GDP growth, a surge in corporate concentration, and heightened income inequality, says a study released today by the Canadian Centre for Policy Alternatives (CCPA). The timing of the study is important given the current government’s intensive policy of negotiating ever-more intrusive NAFTA-like trade and investment agreements with countries like Japan, the European Union, China and others.

The study, by Unifor economist and CCPA research associate Jordan Brennan, looks at trade and investment trends, merger and acquisition activity, corporate wealth concentration, GDP growth, and other economic indicators over the past century in order to determine how trade and investment liberalization—the modern free trade era—has affected the Canadian economy. Notably, the study finds a direct link between corporate concentration during this period and today’s income and wealth inequality.

“Most people assume the era of trade and investment liberalization, ushered in by the Canada-U.S. free trade agreement and continued with NAFTA, has been unambiguously good for Canada’s political economy. However, the most important and until now overlooked legacy of the past quarter-century appears to be the points of contact between corporate merger activity and the associated expansion of large firms on the one hand, and sluggish growth and heightened income inequality on the other,” says Brennan.

According to the study, the rebalancing of corporate earnings from domestic to foreign markets during the TAIL (trade and investment liberalization) era had a noticeable impact on growth and employment. Between 1963 and 1988, the rate of growth of business investment in fixed assets—a key driver of GDP growth—averaged 4.8%. Private sector employment grew at a rate of 2.4% and GDP per capita at 2.8%. All three rates were halved in the quarter-century since 1988, falling to 2.4%, 1.3% and 1.2% respectively.

Though the stagnant growth of the past 25 years may be socially detrimental, it is not necessarily detrimental from the standpoint of large firms, which have seen an enormous redistribution of income, wealth, and power in their favour.

Brennan argues there is nothing inevitable about these outcomes. A strategic trade and managed investment regime that actually promoted domestic investment and Canadian exports and which fostered inclusive, wage-led growth would rebalance wealth and power more evenly across society.

“To get to that point, however, Canadians will need a better understanding of the consequences of current trade and investment policies, which will provide the opportunity to correct our policy errors.”

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Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap is available for download on the CCPA website.

For more information contact Kerri-Anne Finn, CCPA Senior Communications Officer, at 613-563-1341 x306.

ISSUE: Inequality and poverty International trade & investment, Deep integration
PROJECTS: Trade and Investment Research Project
OFFICES: National Office

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