AN ECONOMY AT THE EDGE:

Loss of 600,000 manufacturing jobs negates recovery claims

By Paul Tulloch

he Canadian economy had been staggering like million, or 8% of the workforce. If the underemployed a punch-drunk fighter since the global financial and discouraged workers are included, using Statistics meltdown started three years ago. The resulting great Canadas R-8 measure for unemployment, the rate jumps recession has locked the global economy into a protracted to well over 15%. (Statistics Canada labour force survey) economic decline a stagnation not seen since the Great Social safety nets that for 30 years provided a cushion for Depression of the 1930s. recessions have now been shredded, replaced by a stark Although some policy analysts and media pundits have work for welfare system that at best provides temporary been claiming that Canada is now enjoying an economic and part-time work at barely subsistence wage levels. For recovery, the reality is that hundreds of thousands of those denied any kind of work, inadequate welfare benefits Canadians are still mired in the ongoing recessions adverse doom them to destitution. (Various municipal statistics) effects on employment and income. There can be no talk of More than half the unemployed, under current EI sustainable recovery until our economy rules, are considered ineligible for at the edge starts consistently generating With household debt hav unemployment insurance. (Canadian a great many more high-quality, highing soared to record levels Labour Congress recent estimates) paying jobs. The growth of income inequality There is no denying we have seen and still accelerating, our gives the wealthiest among us hundreds a recovery of the financial markets, fragile economy has become of times more per annum than the with commodity prices and banker dangerously dependent on highest paid workers in industry or the bonuses bouncing back to comfortable consumer credit. How much public sector. (Various CCPA studies) levels. Thats good news for some, like longer can this heavy load Large and growing pockets of the oil and mining industries, but these of consumer debt continue concentrated poverty are to be found small pockets of gain fall far short of among immigrants, seniors households, warranting the celebration of an overall to keep Canadas economy Aboriginal communities, students, young economic recovery. They certainly afloat? workers, and high job-loss economic dont justify the Harper governments communities. A recent report noted that termination of its stimulus measures or the refusal to food bank usage is at its highest level in decades, and that restore employment insurance benefits to the thousands Aboriginal Canadians are most in need of food banks of jobless Canadians now denied them. Clearly, far from help. (Also see the shocking report by the Canadian Labour recovering from the great recession, Canadas economy is Congress titled Communities In Crisis 2010.) now dangerously close to falling off the edge and plunging The massive and sustained increase in long-term into an even deeper recession. unemployment has reached a crisis stage not seen since The more than 300,000 manufacturing jobs lost in the the Great Depression. (These are persons out of work for recession so far are still missing. So are the 100,000 jobs six months or more; see Statistics Canada Labour Force Survey) that were eliminated in the forestry sector. In fact, since Fewer opportunities for high-quality employment 2003, the manufacturing sector our main supplier of the correlates with the rise of precarious and part-time work. income workers need for a decent living standard has (Many sources, including Statistics Canada estimates of had a net loss of over 600,000 jobs (see chart), or close to part-time work but wanting full-time, temp agency usage 30% of the employment level this vital export-based sector statistics, and self-employed.) previously provided. No country in the industrialized The rise in the insecurity of pensions, lost pensions world can rebound from a recession having suffered such through bankruptcies, market losses by group pensions, a devastating blow to its manufacturing sector. Until that and now the spectre of raising the mandatory retirement manufacturing base is restored, Canadians will not see age to 69 all combine to threaten the welfare of retirees a sustained economic recovery. (Job losses calculated using and those nearing retirement. More than 25% of retirees 12-month moving averages for NAICS code Manufacturing today have incomes so low that they fall below the poverty [3211-3219, 3271-3279, 3311-3399, 3111-3169, 3221-3262]; both line. (Globe and Mail, Nov.25, 2010) sexes; 15 years and older, from a peak in 2003 of 2.3 million to Personal bankruptcies over the recessionary period have the current 1.7 million.) reached their highest levels in decades and have stayed The Harper government cites selective numbers and extremely high over the past few years. (See Industry economic abstractions in claiming that Canadas economy has Canada, Office of the Superintendents reports) not suffered as much as the American economy. Admittedly, Finally, the most revealing trend in our fragile economy is our housing market hasnt imploded like its counterpart did that it has become dangerously dependent on consumer so disastrously in the U.S. (at least, not yet), but many other credit. Over the past decade, and particularly since 2007, social and key economic indicators tell a quite different story: household debt has soared to record levels and continues The number of unemployed is now estimated at over 1.6 (Continued on Page 35)

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Switch from stimulus measures to spending cuts nonsensical

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to accelerate. How much longer can this heavy load of consumer debt continue to keep Canadas economy from following the U.S. economy into a much deeper decline? This is a key question that government and business leaders and consumers themselves are still evading. This list reflects the unfolding reality of our economy. These are not the abstract notions of some economists who focus on scraps of positive news and avoid mentioning the elephants in the economic rooms of the country. And neither are the trends listed simplistic problems with easy solutions that a few hastily put together shovel-ready projects and other half-measures will provide. They are very serious problems that, as they continue to be ignored, are increasing in gravity and complexity. We are entering our fourth year of socioeconomic decline and stagnation. Constrained by an inadequate response from both the government and the business world, we are moving beyond the point where temporary, low-cost policy fixes will work. Outside of some extensions to EI benefits, some loans and share purchas-

Chart 1:

es in the auto sector (which the govern- our dependence on exports to the U.S. ment is now in the process of selling at have become even more extended. Most a profit), and a haphazard temporary Canadian industrial sectors now consist stimulus spending program, the Harper mainly of large concentrations of U.S.government has relied on the traditional based branch plants (or what is left of neo-conservative response: deregulate, them) that are completely locked into let the markets work out solutions, ig- the value chain of these large Amerinore the facts, can producers. Given the integration of The auto industry, and restrict the governments role Canadas economy with that of course, is the to serving as the of the U.S., which is undergo prime example). eternally optimis- ing massive financial, housing, To a very large extic cheerleaders for and unemployment problems, tent, therefore, evfree enterprise on every ripple and tear in the ery ripple or tear the sidelines. in the economic fabric of the American econ fabric of the U.S. Given th is failure on the part omy is bound to spread north economy spreads of both business and have seriously damaging north to affect our and government effects in Canada as well. economy. to face economic Give n t he and social realities, Canadians face ongoing massive disruptions of the some serious social and economic risks. American economy, from the financial The most immediate threat is the collapse and the housing crisis to the sorry state of the American economy. loss of over 40% of jobs in that countrys We have a relatively small, open, export- manufacturing sector, the U.S. economy based economy in which more than 70% is in a serious state of decline. With the of our exports go to the United States. recent rise of the far-right Tea Party and Since the passing of the free trade agree- the Republican takeover of Congress, ment in the 1980s and then NAFTA, the a very real threat looms of a double integration of the two economies and dip into further and deeper recession in the U.S. The housing debacle and the financial crisis have yet to be resolved Monthly Index of Manufacturing and, with debt and deficit fighters now Canada 1976-2010 predominant in Congress, the passage of austerity budgets now seems inevitable. The Obama stimulus package that helped avert an even worse recession from ravaging both the U.S. and Canadian economies is being phased out, as is the Harper governments counterpart here. Making prospects even more dire, the global economy also continues to slide deeper into recession. Several recent developments at the international level including the economic collapses in Greece and Ireland and the danger of similar financial crises in Spain, Portugal, and other European countries should raise red flags for Canadian policy-makers. With the European Union also resorting to desperate austerity measures, the resulting impacts on production, trade, and consumer demand are bound to hurt and perhaps
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Canadas economy imperilled by dire state of U.S. economy

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even destabilize the global economy. Then theres the U.S.-versus-China debacle a currency devaluation showdown that threatens the stability of G-20 countries exchange rates. With the quantitative easing that the U.S. announced recently, one of the consequences is a devaluation of the U.S. dollar and with it the devaluing effects on the Chinese yuan, which has been pegged to the U.S. dollar for many years. This effectively produces a quite favourable cost structure for Chinese exporters, resulting in an upward pressure and appreciation for the remainder of the global economy currencies. This trend puts a further restraint on these G-20 economies. Essentially, what is happening is that all economies are trying to export their way to growth out of the recession far from the kind of feasible global strategy that is required. In fact, there seems to be a complete lack of effective political action and coordination by the G-20 group of nations to deal effectively with the ongoing crisis. Instead, many countries political and business leaders including those in Canada seem to be in a state of denial. They keep making groundless claims that the economy is recovering nicely, as if wishful thinking could make it so. Even worse, based on this fantasy, they plan to terminate a stimulus approach they claim is no longer necessary, and replace it with spending cuts and other deficit-cutting austerity measures. If these destructive policies are indeed implemented, the outcome will be the opposite of economic recovery. The accumulated economic losses caused by the financial meltdown started in 2007 will fall like a gigantic hammer not on the bankers, speculators, and politicians whose fraud and folly triggered the crisis, but on working people, the unemployed, the poor, seniors, minority groups, students, and just about everybody else. Reminescent of the Great Depression of the 1930s, the fundamental difficulty today in devising and implementing workable solutions is the failure of policy-makers to see the economic

problems as they really are. As Nobel of the U.S. economy. Without comprePrize-winning economist Paul Krug- hensive and effective renedial action, we man stated recently, the main reason are in very real danger of unleashing an the U.S. continues to have an unemploy- economic storm that will cause massive ment rate near 10% (i.e., 15 million or unemployment and a sharply declining more workers) is standard of living a continuing reli- Political and business lead for millions of Caance on half- mea- ers keep making groundless nadians. sures. He points claims that the economy This is indeed out that the first is recovering nicely. Its a a scary prospect. stimulus package fantasy on which they now But only if our by the U.S. Conplan to replace stimulus meas political and busigress failed beness policy-makcause its size was ures with spending cuts, the ers factually and only half of what outcome of which will be to thoroughly assess retard economic recovery, not the current state was needed. One does not help it in the least to recover. of our economy like to be a naycan we have any sayer during such desperate times, but real prospect of developing the effecit is difficult to muster much optimism tive countermeasures that will stave off when the only policy instrument of our disaster. current federal government is an assurance that the crisis is all but over (Paul Tulloch worked as a senior as if eternal hope will overcome all economist with Statistics Canada for 14 problems. The truth is that our economy years. He is now an independent research is on the edge because it is so tightly consultant and a volunteer correspondent interconnected with the falling giant for LabourStart.)

Chart 2: Manufacturing Employment Index

USA vs Canada

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