Piketty’s new book “Capital in the 21st Century” is all the rage amongst an economic world that rarely mentions inequality, let alone read something on it. This acceptance into such a diverse political terrain is a sign that we could be at the dawn of a new era politically, economically, socially, environmentally and technologically or so the causal chain goes. (This is not quite what the post-modernists had in mind- but potentially modernity reborn and rebuilt?) In many parts of Canada there has been little recovery since the great recession, instead a slow decline and stagnation for most workers and their families. Similar to other times in history of economic depression that have lasted this long- the political space has changed and political parties have transformed. The right has essentially transformed into the radical right led by the likes of Harper and his collaborators such as Brad Wall in Saskatchewan. The centering Liberals are hard to pin down- traditionally wavering to popular appeal. The NDP under Tom Mulcair has found a direction and the heading is being crafted. Given these openings and the potential for change this is an opportune time for progressives in Canada to further develop and extend a progressive functional economic plan. With the decline of the economy, frustrations mount amongst the population making new ideas more easily transmitted and embedded. A potential unlike any other we have witnessed since the post war era of the forties. Ideas that can carve out new political space that propose solutions to these economic impasses. However to achieve such objectives, ideas, vision and leadership are needed. We need to think about change and innovation, but we must also stay connected and centered on the past foundations. There is the reality of a globalized economic world, however the popularity surrounding the Piketty book opens up some new potential. Progressives have choices to make- and much work needs to be done. In that process- the following guide was developed to help those contemplate building of a new economy based on progressive principles.
An interesting dichotomy set itself upon me today and I think it is a good point to start this guide to building a progressive economy in Canada. Today I read an article on the cost of razing parts of Detroit- large parts of the city have been abandoned, de-industrialization has been hollowing out the auto sector, off-shoring, mechanization, and foreign competition have witnessed the decline of the big three Detroit automakers. Together, with the great recession and the housing meltdown, these forces have taken a destructive toll on the people of Detroit. Recall that not even fifty years ago, Detroit was the pride of Capitalism- basking in profits for the wealthy, the center of the automobile world, filled with hundreds of thousands of workers making middle class pay. A rising living standard based on an egg shape distribution to wealth rather than the hour glass of today.Tax rates on the wealthy and the corporations were substantially higher and the collective good was paid for by all. Contrast it to Detroit today-with its population in serious decline it will have to pay over $1 billion dollars to raze large parts of its abandoned city. In fact in those abandoned parts of the city, one of the dangers lurking are hordes of wild dogs who number in the thousands. With cut backs there are no dog catchers or humane societies to keep the wild dog population in check and they have multiplied and become a real danger in those areas. Yet in this article the debate within the media was about how many jobs razing the city would create!!!
Reading about Detroit brought the contrast to the study of China I have been performing for over a year now, focusing on parts of its economy, history and workers.
China is undergoing a massive transformation- most likely the biggest in all its very long history. It has become the world manufacturing center and with that a massive level of economic development has been ongoing in China for the last two decades. At first experimenting with markets forces- (letting corporations make the rules of exchange) then having some level of success they expanded these market forces and now have allocated almost half of the economy to corporate control somewhat beyond the State Owned Enterprises (SOE) – the boundaries of power relations are still somewhat blurry. However, there has been some transfer of economic decision making outside of the party and its SOEs.
China is embarking on a new form of capitalism- a state centered command capitalism. Its development has been very questionably uneven and unequal on many fronts. The results are undeniable- as it has been pulling hundreds of millions out of a traditional rural economic culture into a much different apparently wealthier mass production based economy. It is new in some ways but very old in others- surely not one that I would dare claim worker friendly as it was mainly built on the backs of 400 million workers who migrate from the 800 million rural folk- trying to supplement their family income back in their rural homes by working in the urban centers for questionable wages and working conditions for many. But a new burgeoning middle class of 300 million has been built and many new cities in China have grew from this massive economic development. The built form of the landscape reflects this sudden massive surge where long historical tradition is plowed under to make way for new skyscrapers. Take the pearl river delta north of Hong Kong. Just 20 or so years ago, a small fishing village of Shenzhen has a population in the thousand. Today, 20 some years later it has become the heart of the global electronics industry. It is a world leader in manufacturing, and now making headway in design and automation. This small fishing village has grown to a mega city with a population of more than 10 million- with several adjoining cities of similar size. It is uncanny. And of course these new journeys of wealth under a mix of capital and state direction discover new and old challenges of social cohesion, environmental degradation, and social injustice. China still is considered a developing country and there is no doubt about its extremes in wealth- a whole lot of extreme poverty and now a middle class to go along with those inside the Party.
The comparison and contrast between these two countries is amazing- very similar yet also different in key areas from leadership down to the shop floor. Change and at different points in historical processes and space. So many people making it and so many people left behind.
I am not flag waving here for China- in fact far from it, as my point- China is struggling and so to is the USA. They have both taken different paths to development- but ultimately they seem to be leading into the same space. A plutocracy leading both countries- and a political ideology filled with more propaganda than truth all to engage the necessary social cohesion to produce value and surplus. The question for progressives- how can we change such outcomes as we see with China and USA – which both started at extreme ends of the political and economic spectrum and now both seem to be meeting in the middle of political and economic power. How does one build a foundation of theory and develop a vision for a future social and economic when both systems have come forward and failed to deliver some of the most basic ideals that founded their history and culture upon.
Where will the practical ideas on progressive visions for Canada come from and where will they lead us.
For me a functional approach to economics is the starting point of this debate. Many countries are embarking on questioning the future of their economic base, as the global recession still has a hold on many economies. Some countries are being proactive- some are content with the status quo and- some are being driven to them. At the core of most failing economies in this great recessionary period and its stagnation, is the question of declining demand. It was the central thesis of the Keynesian economics solve the demand problems and one will have taken a large step in sorting out the rest of the economy.
Keysian economics when compared to other economic attempts at organizing capital and labour was moderately successful. At least temporarily, as it climbed the developed worlds summits after the second world war to the pinnacle of the commanding heights. And had a glimpse. It was a point in economic development unlike any other in our modern history under capitalism. Wealth and power were redistributed, not equally shared- but the state was much more independent and somewhat empowered with the ability to tax and spend. Workers had stronger representation in unions, and through the machination of the state. social security was on the rise for all. It was a heady time- still filled with many problems but at least wealth and power were starting to be shared- and in many cases it was through collective action and state regulatory actions that power and corporate interests were somewhat contained.
So as Piketty suggests or maybe he is asking- do we go back to seeking that compromise in the form of a new deal like strategy and try it all again. Some on the left have questioned the logic on that strategy- as many point to the issue that the ink was not even dry as the wealthy and the corporations signed onto the new deal-of the Keynesian compromise- and they fought behind the scenes to dismantle it. It took them 30 some years to the mid-70’s to destroy Keynesian economics- and maybe it imploded a bit itself but ultimately they had the power to destroy it. Therefore some economists ask why rewind history and recreate conditions for similar outcomes. It is a good question that many are starting to ask Piketty followers.
In practical terms what can progressives do- to follow up on a platform for functional progressive change. I only intend to outline some ideas below- they are not dealing with the entire transformation of the political- but mainly focus on some economic possibilities and realities of a global connected economy inside a politically empowered state and an effectively enhanced worker voice.
If we can convince capital to come out of the financial markets, the low wage value adding strategies of off shoring to China, the deep US south and Mexico, then we could will see some change. The good news is with the Piketty fascination comes a sign that we are starting to see at least a small question mark on the neo-conservative economic reality and vision of today. To me that means behind the scenes there must be some real trouble brewing.
So here is a partial and incomplete listing that I will be expanding as we move forward in time. I am hoping it helps frame some ideas for left progressive. I have to come clean- nothing here is revolutionary and nothing here is something that you have not probably heard before. However- it is my attempt at fitting many ideas together to start exploring them further.
1)wealth creation and investment- we need a financial system that builds value from a future that is sustainable and equality based. Not the current destructive machinations from the global financial markets and derivative vehicles of speculative bubble based at the center of ones economy. We have had our dot.com bubble, our housing bubbles and these are not a sustainable nor a value creating approach to building an economy that will survive the challenges of present and future. All the dead money we speak about is actually caught up in short term investment vehicles, interest rate swaps, repos of varying lengths and types, and also credit default swap. The stock market in the traditional sense is merely the type of the derivative iceberg. Re-regulating finance is not enough we need to ensure the state is empowered enough to press for substantive change. We need a new SEC, we need to reduce tax haven, ensure our banking system has more of the public interest than profit motives in mind. With Canadian banks increasingly involved in these global markets we must ensure liquidity rates for banks and leverage ratios are sustainable. We need more information on the operations of the CMHC, and its relationships with the banks. We have been impacted greatly by the US financial meltdown both directly and indirectly.
2) We need to transform the energy sector- the carbon bubble is building- and most fossil fuel assets are currently being environmentally challenged by first nations leaders and the global environmental movement, especially the tar sands, coal and oil. These energy extraction assets will be faced with a growing global push back and divestment pressure. It is at best a very short term base to our economy that is clearly not something any developed economy of the future will continue to rely upon as a core economic base. Resources are a gift that we have in this quite physically large and geographically diverse country. However- we must also be a caretaker first and extractor second we need to slow the rate of extraction and eventually transform to alternative energy. Economically, our country’s vast resources enable us to deliver onto the world just about any mineral, wood, or energy product we desire and plenty of food crops as well. The future success of the nation as in the past and present with the auto sector- relies on value adding to these resources. We need to get away from our staples economy past. We need to leverage these resources to allow the country to become a leader amongst the most developed economies in the world by producing outputs higher up in the increasingly global value chain. The world needs us to serve in a leadership role in this complex world – not more pillaging and destruction of the land and people. Resource extraction is something any country can do- but what one does with those resources separates standards of living. We are falling fast back down the staples economy trap- becoming more and more a source for resource exploitation- governed by those who would prefer to allow foreign corporations to lower tax rates and relax environmental standards to basically take our resources, destroy our natural environment and value add back in home countries.
3) We need to engage the future now, of a production process that is undergoin the most massive changes since the industrial revolution. The digital economy- will accelerate the amount information and transcend its current capacity to will become just as important as capital and labour as an input into the traditional production process. It has been growing for 20 years and still maturing, but lately with the focus on big data and smarter machine learning these forces will continue both in terms of an increase in productivity through diversifying the abstract production of value and also the direct more concrete aspects of value adding. The globalized production process with it’s lower wages of manual production will continue to prove to be a disincentive to innovate into these processes, but eventually productivity combined with workers who can work with this data and these new machines will over come the low wage strategy that other countries compete on. There will be smart automation that takes the worker as a cost to be minimized. However the more successful designs in this process of integrating this information into the production process that is worker centric and not machine centric. We will have a shift away from the black box approach to smarter machines, and there will be a race to see who can capture this production process and its large gains to productive outputs. From robotics, to AI, to building and integrating this information into all aspects of production- the information revolution is real. It will take a lot more time to mature and Big Data is just another step in this longer term process. As big data is the first realization that informating the digital world actually produced massive amounts of data, and inside that data there is a new found value that will allow machines and workers to act in the value adding process in ways and means that will be compared to that which history refers to the invention of the steam engine. We are still only a couple of decades into the digital economy- and its transformations of the traditional economy- within this 20 – 30 year space have been all encompassing.
4) We need to ensure rewards and safety nets are at levels that allow people and families to gain access and participation in the middle class. Providing a good job is part of that-and allowing workers to unionize and a right to collective representation empowers workers and their union representatives to builds good jobs. It is increasingly more difficult within the globalized economy to ensure good jobs are protected and grow. Much of the job growth over the past years has been in low waged- lower value adding jobs. Investment capital is more portable- service and products can now be designed, produced and sold in many regions of the world. This allows companies an upper hand to whipsaw workers from many countries in a race to the bottom. However it does not have to be that way. Investment needs workers and it needs infrastructure. Both of which Canada has comparative advantages in. For a small open economy such as Canada’s with its massive geographic that sits on the border of the wealthiest country in the world- we have a lot of unrealized potential. The goal must be to build a high wage, high productivity economy that we can build a more equality based society. It will take skillsets for the new value chain that will be demanded of a modern successful economy. Information and application of these new tools will be necessary. Education, training infrastructure and a cultural process to support such efforts are the new causal forces behind enabling the ecosystem of a highly innovative sustainable economy. We have a highly trained workforce now- with a good foundation to adapt and change as the technology and organizational inputs will demand such skills, experience and worker and management expertise. This will focus on all levels of value adding.
5) Public sector plays a massive role in building all the above- and also ensure the middle class and access to the middle class are healthy, one way, regenerative and robust. Education, healthcare, transportation and urban infrastructure, telecommunication are keys to building social cohesion and labour and capital productivity to increase standards of living. We need to ensure those workers that fall outside the higher productivity wage gains- are included in this growth and increasing wealth. We need to have higher minimums in terms of wages and benefits and more effective social policy to ensure gains are shared across all occupations. When labour markets fail we need a new set of social protections to come into place- whether they be guaranteed income floor, a whole new training culture for all, or a reduced working time for the same pay- many options need to be considered and regulated by the state. However these cannot just be regulated, they must become a part of the cultural process- where society never gives up and casts anybody out of opportunities and achievements.
6) The green revolution- what is there to say- green energy, conservation and a focus on accepting the externalities that the current system takes for granted in its cost equations need a rebuilding. We will need a lot of innovation and change in this space- the good news is, we have a whole lot of spare capacity in employment and investment to take this on. A lot of technology already ready and waiting to take this on- can markets do with effectively or will this be a public good effort. Market have failed so far to penetrate the solution space. There are a lot of good best practices and some quite astounding projects out there, but still have a long way to go to meet the challenges of these necessities for sustainability. It seems like energy conversion is the new focus. Profits are what the markets look for- however- will this ever be something the state can transform successfully in such a manner.
7) Diversity and inclusiveness- women, racialized workers, disabled, and other minorities entering within the workforce require equal opportunity and access to work, training, education, healthcare and other benefits that a equality focused society strives to fulfill.
8) First nations- our history books are still based on many lies- can we start with at least affordable food! See my food price study on the link above for the north.
9) Social safety nets and the great society restored-rebuilding a social security system goping backward to get ahead- with growth in jobs and taxation- the much starved social programs over the past 30 years, can be rebuilt and updated to reflect current needs. From training, and education needs, unemployment protection, pensions, child care, regional equalization- so much can be accomplished by building a more equal, and productive society.
One thing for sure a Hudak win on June the 12th will accelerate Ontario and the rest of Canada on it’s trajectory to an actually existing Detroit.
The latest GDP numbers have confirmed that Canada has officially entered into its second recession in less than 10 years. Without much but denial from the federal government- many questions remain on the nature and extent of this new recession. How long will this recession last? How will it impact different sectors and regions? How many workers and families will it affect? As with most economic questions – we must look deeper into the data for clues to make such predictions. One such measure is the Employment Insurance (EI) claims data. The Employment Insurance statistics are an administrative data source. The level of EI claims are a very sensitive indicator on the health of the labour market. The Conference Board of Canada uses EI claims as one of the single inputs of the labour market into their modelling of a leading indicator index on the economy. The EI data is far from perfect and excludes many of the unemployed especially those in short term unemployment- but it can provide a strong timely indicator of the functioning of the economy. Given it is administrative data, it goes beyond the data quality of unemployment numbers estimated by the Labour Force Survey which are subject to large sampling errors. The data looks at EI claimants rather than those actually receiving benefits. The waiting and processing period of EI can delay the statistical outcome of being counted as a person collecting benefits for up to a four months. Therefore focusing on claimants provides a timelier look at the economy.
