The world’s financial markets are going through an incredible period of turmoil and crisis. It is now widely acknowledged that this is the worst since the Great Depression in the 1930s.
- Open Letter from Canadian Economists on the Current Economic Crisis and the Appropriate Government Response
- A Statement on the Economic Crisis by Canadian Labour Congress President Ken Georgetti
- Trade Unions Demand Effective Responses from the IMF and World Bank to Worsening Financial and Food Crises
In the United States, major investment banks, mortgage companies, insurers and main street banks have collapsed or been taken over. Large banks have failed in the U.K. In the past week, the Irish, Greek, German and Danish governments have all come to the rescue of their banks with a guarantee of all deposits. In Iceland the government recently seized control of the country’s largest banks, which had become an offshore financial haven, in an attempt to prevent economic collapse.
And the situation is expected to get worse. The economies of most industrialized countries in North America and Europe are now expected to descend into a recession over the next few years.
Widespread investment in rotten or “toxic” financial products and growing financial and economic uncertainty and pessimism has resulted in a credit crunch, making it increasingly difficult for many businesses, people and even governments to borrow money. While this credit crunch isn’t the underlying cause of the downturn, it will accelerate it and make it deeper and more widespread.
The Canadian economy and our public sector employers will not be immune to these problems. Many people have already seen steep declines in the value of their pensions and investments. Private sector employers will face cutbacks, spending and employment and investment will decline in some areas and governments will face slowdowns or drops in their revenues.
These economic problems did not just appear in the last few weeks or over the past year. They have been developing for a long time and have deep roots.
An unsustainable housing market boom around the world was fuelled and exacerbated by speculation and fraud in very lightly regulated parts of the financial sector. The subsequent collapse has already left millions homeless and hopelessly indebted in the wealthiest country in the world. The housing boom and bust itself was based on an economic and financial system that has become increasingly unequal, unsustainable and out of control.
Hundreds of billions were made in escalating corporate profits in Canada and not re-invested back into the economy. Tens of billions were handed out each year in lavish bonuses to Wall Street financiers to reward speculation and excessive risk. Meanwhile, ordinary working people in North America have struggled for decades to achieve wage increases just to keep up with the rising cost of living.
For years, CUPE and our allies have been telling politicians, government officials and anyone else who would listen that their neo-conservative economic policies of de-regulation, privatization, tax cuts, corporate trade deals, and cuts to public programs were not only socially unjust, but also economically harmful and dangerous.
Rarely were we listened to. Too often we were dismissed as economically naïve and afraid to embrace the demands of global financial capitalism.
Now we are seeing the results of their economic policies—and it’s not pretty.
The world’s media was gripped with the drama of financial failures, plummeting stock markets and whether Washington would approve a $700 billion bail-out package to rescue Wall Street. At the same time, it has neglected the plight of the working families who were exploited to fuel this excess and now have to pay for it. Also increasingly ignored are the billions around the world who live on less than $2 a day and the Earth’s mounting environmental problems.
Many were understandably opposed to the bail-out package, appalled by the thought of ordinary Americans bailing out the very same wealthy financiers who caused this mess.
The bail-out package has now been passed, providing some relief to the financial world. But because the problems are deeply rooted, they won’t be solved with any quick fixes. Short-term bail-outs and emergency measures can help to stem the financial market panic and immediate credit crunch, but they won’t solve the fundamental problems.
There is a chance that they could also make it worse if they aren’t combined with measures to help Main Street and with far-reaching reforms to our economic and financial system.
Right-wing ideologues and business opportunists are already exploiting this crisis to force through even more tax cuts, public spending cuts, and other emergency measures. Prime Minister Harper will likely try and use this to push through more of his neo-conservative policies—tax cuts, deregulation, privatization and cuts to public spending—that caused these problems in the first place. These types of measures will make the economic situation much worse.
More than ever, we need to forcefully oppose their policies and use every opportunity to push for measures that will provide for greater economic stability and a better quality of life for all.
This must include:
Re-regulation of the financial industry. Much stronger regulation of the financial industry is needed in order to protect the investments and pensions of ordinary Canadians and rebuild confidence in our financial system. Stronger regulation and tax reform are also needed to reduce the incentives for speculation and fraud that fuelled this financial boom and bust, creating an unstable economy, while giving billions in benefits to the most wealthy. Most of the recent attention has been on the United States, but Canadian pension funds were sold over $13 billion in rotten Asset-Backed Commercial Paper investments, of which they are likely to lose one-quarter to one-half in value. This was just the tip of the iceberg. Canadian pension funds have now lost more than $100 billion so far from the financial market meltdown.
Pro-active response to the economic slowdown. The first instinct of governments faced with an economic slowdown and lower revenues could be to cut spending and reduce public services to prevent a deficit. All reasonable economists agree that that this would be exactly the wrong thing to do and would make the economy even worse. Instead, governments should maintain and expand public services to both protect families and to help the economy avoid a deeper downturn. During tougher economic times, the public services that CUPE members provide are even more important.
Most Canadian governments have improved their fiscal health during the recent boom; this gives them the capacity to run deficits in a sensible counter-cyclical economic manner through an economic downturn. Reducing interest rates through the Bank of Canada will be less effective this time and so governments also need to turn to fiscal policy to stimulate the economy instead. Tax cuts have been shown to have little positive impact. Instead, this needs to include forward investments in our future (see below) and improving existing programs that help those who will be most hurt by the downturn: expanding Employment Insurance benefits, improving and modernizing social assistance, and increasing public pensions.
Investing in our future. Despite record profits and surpluses, Canadian businesses and governments have failed to adequately invest in Canada’s economy in recent years. As a result our productivity has declined and our public infrastructure has crumbled. Instead, they have relied on consumers to increase their spending and indebtedness to keep the economy growing. That has now reached a breaking point. We need governments to show leadership in strengthening our economy through: increased funding to rebuild our public infrastructure, with a strong focus on energy efficiency, renewable energy and green investments; economic strategies to rebuild our industries, particularly the manufacturing and forestry sectors; and investments in people, such as improving public health care, research and development and education, including early childhood education.
The recent economic boom, while unequal and unsustainable, still provided benefits, especially in terms of job growth and rising revenues for governments. CUPE has worked hard to improve wages, benefits, pensions, workplace standards and job security. We’ve achieved progress, but not as much as our members deserve.
With public support on our side, we’ve fought hard to maintain and expand public services not simply because they provide jobs for our members, but because they are the fabric that holds our communities together and that strengthens our society and economy.
We will now be on a rockier economic road for the next few years. Bargaining will become tougher and we will face increased pressure for cuts to public services.
During these economic rough times, the great value of belonging to a union and working in solidarity with others to protect jobs, living standards, and to build a better economic system should become ever more apparent.
Throughout this we need to stand tall, be realistic about the conditions we face, but also make it utterly clear to our politicians that their neo-conservative economic policies have become bankrupt. It is time to build a better future on the foundation of a more just and sustainable economy.
Toby Sanger, CUPE senior economist