Squeeze in living standard is the price of crisis

Politicians routinely ask  voters if they are better off than, say, two years ago. The average Canadian probably would answer “No.”

Although the federal and provincial governments have applied shock treatment in the form of fiscal and monetary stimulation, the general economy has been stuck in the doldrums. Unlike the 1930s, in Canada there has not been a complete collapse in parts of the economy, as some firms’ profits have held up amazingly well.

However, the benefits of the recovery have been distributed unevenly. The manufacturing sector, notably the automobile companies, are just starting to gain some traction. Raw material companies, such as in the petroleum and mining industries, have performed very well indeed. Yet most pay cheques have not improved more than modestly. The owners of capital have gained remarkably.

Are these trends confirmation of doctrinaire left-wingers who believed as capital accumulated, the situation of workers, regardless of their status, must grow worse? Along with that, it was implied by that theory that corporate profit margins would decline, all part of capitalism’s dying throes. Like those who constantly predicted Judgment Day and the end of the world, those predictions have not come to pass.

It must be recognized, nevertheless, that there is a divergence between capital and wages. Wages have stagnated, but those with money or the very wealthy have flourished. The governor of the Bank of England observed that “the squeeze in living standards (which has taken place in Canada and the United States) is the inevitable price to pay for the financial crisis and the subsequent rebalancing of the economy.”

There also is a longer term trend to explain what is going on. While wages still account for a much greater share of national income than profits, labour’s share of the total economy has been in sharp decline. Real wages, that is adjusted for inflation, have barely moved.

There has been an increased inequality of income. The earnings of top executives and those in the entertainment and sports sectors have risen much faster than the median. There has been a premium for some kinds of talent, but that is only part of the story. A partial explanation has been the decline in union membership. In the 1960s and 1970s unions in the manufacturing industries, such as the steel and automobile companies, were able to demand higher wages and started to move into the middle class. Now high-paying blue-collar jobs have been losing ground, certainly compared to so-called “knowledge workers.”

The parts of the economy that should get more emphasis are the engineering and technical sectors. We are graduating fewer engineers relative to those with degrees in business administration.  Probably, once the false enthusiasm of the financial field evaporates, our economy once again will return to a more sensible course, real wealth creation, not just “paper assets.”

Bruce Whitestone