Canada’s Profitability and Stagnation Puzzle

Published on The Bullet, Socialist Project’s E-Bulletin No. 912, by Michal Rozworski, December 18, 2013.

The Puzzle Defined: Most developed economies continue to experience fall-out from the financial crisis of 2007-08. The Eurozone has been most ravaged, but the U.S. and UK have not fared much better. After the initial rebound from the most severe crisis, growth in many economies has been decelerating to the point that some are once again contracting in real terms. At the same time, unemployment remains high – hitting record levels among youth in Europe for example – real incomes are flat for the vast majority, inequality is on the rise and austerity programs targeted at social services are eating further into living standards. 

Canada has partly bucked these trends. While the overall growth rate has not returned to pre-crisis levels, it has not done nearly as poorly as that in Europe or even the USA. Other measures of economic well-being do not suggest the level of alarm felt in harder-hit economies. To give two examples, the Canadian unemployment rate has grown relatively modestly and the distribution of gains since the crisis has not been skewed toward the very top to the extreme that it has been in the U.S. and elsewhere. The financial press is increasingly optimistic – just this past week cheering newly-released above-forecast quarterly growth figures – and the Conservative government remains steadfast in touting our supposed economic prudence and resilience.

Finally, but not least, Canadian corporations also have had it relatively good since the crisis. Other than a sharp dip around 2008, profits have remained high and growing … //

… Pieces of the Puzzle: Some factors behind our high-profit, low-investment climate: … //

… Sources    of the Puzzle: Looking beyond the standard account: … //

… Demand:    The Keynesian way out of the puzzle: … //

… Destruction: The Marxian way out of the puzzle: … //

… Puzzle Solved: Austerity gives profits a boost:

At this point, however, the Conservative government’s answer to the same question of what is needed is neither; instead, the government proposes a third alternative: deleveraging. This is a fancy “d”-word for austerity or, rather, the lowering of public debt, which is the aim of austerity. The austerity agenda is a political tool with strong economic foundations. The profitability puzzle may be no mystery after all; it is an intentional strategy to ensure the private sector gain with no pain, high profitability with low investment.

Austerity is not an isolated Canadian phenomenon nor is it a new one. The neoliberal era that began sometime in the 1970s has seen austerity in one form or another applied worldwide. Economic crises have especially provided governments with excuses to institute or continue austerity policies that would not have been difficult to institute otherwise. While Canada did not experience the latest economic crisis to the same extent as a number of other countries, it has seen a more moderate version of many of the same trends – such as slower growth and lower employment. The crisis was large enough to allow the Harper government to continue and deepen a tentative austerity regime. While Canada has not pursued austerity programs as spectacular as some, for example the UK or Spain, the Conservative government has, nevertheless, succeeded in substantially reducing the size of government, small cut by small cut. While Canadian austerity policies predate the crisis, the crisis has only helped to entrench them and further orient them toward propping up profitability.

For over two decades, Canadian government expenditures have been falling steadily as programs and thousands of public service jobs have been cut across departments … //

… (full long text including hyper-links and 6 graphs).


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