Outsourcing the Canadian Economy

Powell River, British Columbia.

A news story this week blandly described the perverse reality that is the current state of the Canadian economy. The headline read “Corporate profit margins at 27-year high and likely to stay there.” Pretty heady stuff if you took it out of context. But the context is everything: pathetic growth projections, record high personal debt, stagnating wages, hundreds of billions in idle corporate cash, a multi-billion dollar infrastructure deficit, a growing real estate bubble and a Bank of Canada chief who has no idea how to fix things. And, of course, a prime minister who thinks fixing things is heretical.

The headline describes the conclusion of a report by CIBC World Markets the gist of which is that not only has the profit margin hit a 30-year-high of 8.2 per cent (the historic average is less than five per cent) but the signs are that it is going to stay there: “profit margins are fully supported by the fundamentals.”

Ah, yes the fundamentals. The study doesn’t purport to make any ethical or moral judgments (or even economic ones for that matter) — it just states the facts. Indeed it doesn’t talk about the context of those facts at all, nor that this hyper-profitability might indeed be bad for the economy in general, for growth, for employees, families and governments. It’s as if the fundamentals were somehow God-given, having fallen from the sky.

But of course “fundamentals” don’t fall from the sky, they are the result of the actions of governments, corporations, individuals and other agents — some random, some planned, some unpredictable — like the crash in oil prices. Economists love to talk about fundamentals, but in this case they are related to a structural change in the profit rate: that is, a permanent shift from the below five per cent level to over six per cent — a 20 per cent increase. The key fundamentals, says the report: “globalization, innovation, lower cost of capital, high barriers to entry, and reduced bargaining power of labour…”

The report points out that the crashing Canadian dollar is a big factor but for the economy as a whole, for Canadians’ standard of living and for future investment it is the last item that matters: the “reduced bargaining power of labour.” Wages and salaries have been flat literally since 1980 and personal debt has tracked upwards in parallel as inflation ate into disposable real incomes. This is not sustainable for any functioning capitalist economy that depends on growth to survive.

Here are some of the consequences of a continuing high-profitability/slow growth scenario:

* The rich will continue to get rich and income and wealth inequality will continue to grow. Stock prices will continue to rise, as corporations accumulate more and more idle cash, dividends will increase. According to the IMF Canadian corporations are accumulating “dead money” faster than in any other G7 country.

* As increasing amounts of the wealth created every year accumulates in corporate coffers, personal debt, now at a record high of 163 per cent of annual income, will continue to rise increasing the already bloated profits of the big banks.

* Corporations exist to make profits, not to invest for the sake of investing. What is the motivation to invest if your profits are at record levels and the bargaining power of labour remains low? According to the CIBC report, “No less than one third of Canadian GDP last year was produced by sectors with falling labour unit costs.”

* With corporations relying on falling labour costs there is even less incentive to invest in innovation, training, or new equipment and technology to increase productivity.

Those costs — a reflection of labour’s weakened bargaining power — are not likely to increase anytime soon. The labour participation rate (the number of employable people working or looking for work) is at its lowest since 2000 — providing a reserve of workers that will continue to suppress pay. The economy produced fewer jobs in 2014 than at any time since 2009.  At the same time, corporations are on a binge of hiring part-time to avoid paying benefits. Partly as a result, Canada has the second highest percentage of low-wage jobs in the OECD.

Another CIBC study revealed that job quality is at its lowest level in 25 years. The bank’s job quality index has fallen 15 per cent since the early 1990s. The index “examines the distribution of full- and part-time positions, the gap between self-employment and the higher-quality jobs for paid employees, and whether full-time jobs were created in low-, medium- or high-paying sectors.”

Perhaps the key observation made by the report’s author, CIBC deputy chief economist Benjamin Tal, was that “The findings reveal a descending path in labour quality, a gravitational pull the study’s author warned will persist unless it’s addressed.”

Addressed by whom? He doesn’t say. But like any other economist, he clearly knows the answer. The structural nature of low quality, low paying and insecure work is not an accident of nature — it is the result of both corporate practices and government policies.

The so-called “labour flexibility” policies of the 1990s are still in place: the slashed accessibility to Employment Insurance, impoverished social assistance programs, and the abandonment of labour standards enforcement. Rather than addressing the issue of low job quality, the federal government has been exacerbating it with the Temporary Foreign Workers Program (TFWP), allowing hundreds of thousands of young people to work for nothing as so-called “apprentices”, and making commitments in trade agreements to allow companies to bring in skilled workers with none of the “red tape” involved in the TFWP.

Even though the TFWP rules have been abused, at least under that program there is supposed to be an assessment of whether Canadians can do the job before a foreign worker is brought in.  Under trade agreements, corporations have been guaranteed the right to outsource high paying jobs to foreign workers without any such assessments. According to the government’s own data, most of the foreign workers in Canada are here without any responsibilities placed on their employers to prove they tried but failed to find Canadians to do the job. For example, only one of the 14 jobs in the infamous Royal Bank example — where Royal Bank workers had to train their replacements from India — were brought in under the TFWP. The rest are likely to have got their positions through the intra-company transfer visas provided for by trade agreements. While the jobs outsourced through the intra-company transfer program are referred to as “temporary,” clauses in the program allow them to stay for up to seven years. The motivation appears to be pure greed: displacing highly paid Canadian employees with much lower paid foreign nationals.

Outsourcing Expanded

The program was supposed to be limited to executive and managerial positions (applicants are supposed to have university degrees) but has rapidly expanded by exploiting a clause that says workers with “specialized” skills can also be brought in. Concerns have been expressed by insiders that companies are exaggerating employee resumes to expand the scope of their outsourcing.

No wonder Canadian graduates are having so much trouble finding jobs — the Harper government is determined to give them away.

As bad as things are they are about to get much worse. At the urging of the Canadian Services Coalition, a corporate lobby group, the multiple trade and investment agreements the government is intent on signing (or has signed) all contain sections allowing for such transfers. International Trade Minister Ed Fast boasted that the next generation of trade deals such as the Trans-Pacific Partnership will be much more ambitious about enabling the entry of foreign workers.

For sheer callousness it is hard to outdo the Harper government. But the academic cheerleaders for expanded trade agreements aren’t far behind. Shih-Fen Chen, with Western University’s Richard Ivey School of Business, opined that while the displaced Royal Bank workers would have a hard time finding other jobs, “Outsourcing is just international trade in the service sector and the rationale to support it is similar to the trade of manufactured goods.”

Well, yes that sounds about right, if the Harper government’s rationale in trade negotiations is to do to Canadian service sector jobs what NAFTA and other trade agreements have done to jobs in the manufacturing sector: outsource them.

At no time in the past 70 years have Canadian workers and their families been confronted with such a ruthlessly indifferent combine of corporations and the state. Neo-liberalism, the so-called freeing of market forces, is thus revealed as having no limits, ethical, moral or political to its greed and its contempt for society. And it has little to do with “market forces.” It’s simple corporatism.

MURRAY DOBBIN, now living in Powell River, BC has been a journalist, broadcaster, author and social activist for over forty years.  He now writes a bi-weekly column for the on-line journals the Tyee and rabble.ca. He can be reached at murraydobbin@shaw.ca


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MURRAY DOBBIN, now living in Powell River, BC has been a journalist, broadcaster, author and social activist for over forty years.  He can be reached at murraydobbin@shaw.ca

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