How to build an economy for the 99%

May 25, 2020

Wendy KeatsNote: this piece was originally published on the Co-operate Enterprise Council website by CECNB’s executive director Wendy Keats. This piece is a follow-up to an earlier post Wendy wrote on the CECNB blog entitled Becoming the Society We Want.

At the time of writing the first post, Wendy didn’t expect the most promising opportunity for real change to happen so quickly. But it has. In this edition, Wendy lays out five tried-and-proven strategies for building a new economy that works for the good of all people and our planet. And she goes one step further to show how it can all be done without costing taxpayers any new money.

I ended my last blog with the statement: “I’ve come to believe that my childhood dream of a caring, inclusive, equitable society is not only possible, it’s waiting just around the corner”.  However not for a moment did I expect the most promising opportunity for real change would come within a few days, nor that it would be in the form of a virus that would shut down the world and drive us towards a global recession. 

Yet here we are today. In shock. Wondering what comes next.

Economist Milton Friedman once said, “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around”. And while I disagree with just about everything else Friedman said, he is unquestionably right about this. 

Greedy capitalists and corrupt governments around the world have been using this “crisis strategy” for decades to garner power, control, and trillions of taxpayer and consumer dollars. 

It works like this: when the public is disoriented and reeling from a crisis, corporations and governments push through radical, pro-corporate solutions that would otherwise never see the light of day. There are dozens of examples from Pinochet’s takeover of Chile to the war on Iraq and the financial crisis of 2008. 

“Corona capitalism could shower aid on the wealthiest interests in society, including those most responsible for our current vulnerabilities, while offering next to nothing to the most workers, wiping out small family savings and shuttering small businesses.”

Corona capitalism is already in full swing as we see the Trump administration announce $500 billion for large corporations with practically no oversight while others are busily exploiting the crisis to push for no-strings corporate bailouts, regulatory rollbacks, lowering of employee rights, and environmental standards. 

And it’s not just our neighbors to the south. Alberta recently announced a suspension to environmental reporting requirements for industry that applies to the Water Act, the Public Lands Act, and the Environmental Protection and Enhancement Act, leaving the oil industry free to move forward with plans with no regulatory oversight. And like some kind of crazy conspiracy movie, there’s growing evidence that China is positioning itself to use COVID-19 to take over the global economy. 

MacLean’s and the Washington Post recently reported “China is planning to overproduce various goods to flood the market and increase its market share while Western companies are on their backs. China is also setting itself up to be a haven for foreign capital if its markets bounce back before ours.”

It all boils down to this: to the greedy and corrupt, crisis is nothing more than an opportunity to make a lot more money. Sound evil? It is.  

Yet one has to grudgingly admit that this “crisis strategy” works very well to make very big changes in a very short period of time.  So here’s my proposition: why don’t we use it for good rather than evil?  We have the solutions…and we know that they work! 

It’s time for an economic model that makes sense to the 99%. 

Who among us really understands how the economy works? Oil prices that fluctuate daily, the stock exchange, debt-to-GDP ratio, free trade agreements…come on, we’re just ordinary folks trying to pay our mortgages and give our kids an education and decent quality of life. Yet, it’s us worker bees and consumers who keep the economy going with our hard-earned dollars and the taxes we pay.

So shouldn’t we have an economic model that makes sense to us? One that rewards those people and businesses that create actual value for society, rather than lines the pockets of greedy capitalists and foreign corporations? 

“We cannot solve our problems with the same thinking we used when we created them.”

Call me crazy (it’s been done before 🙂 ) but I’m pretty certain there are lots of us out here who would love to see some common sense being used to rebuild our economy post COVID-19. 

What really excites me is that we have the solutions and they are neither hard to do nor based on some wild hypotheses!  Best of all, they don’t need to cost government anymore money than what they spend now.

Five Tried and Proven Strategies

There are literally thousands of ideas about economic change from some of the greatest thinkers of our time and, while many have great potential, there are five that have been proven to work time and time again.

These are not pie-in-the-sky ideas by a bunch of radical socialists but rather tried-and-proven, scalable models from around the globe, and here in Canada, with solid evidence that they are more productive, more inclusive, more sustainable, and make real differences in the lives of people and for our environment. 

Each of these five strategies on their own would make a huge difference. Together they are the formula for an economy that works for the good of all people and our planet. 

(Note: Below are links to pages that give detailed information about each strategy and the evidence that they work. However if you don’t have time to read them individually, there is a summary at the end.)

The first, shortest, and perhaps not-so-sexy strategy. Yet, it may well be the most important step of all…

“The three wealthiest people in the United States now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households.” Here’s how we can change that…

For years, Atlantic Canada has been in a trade deficit position – importing $11 billion more than we export – and leaking up to $4.50 of every $10 out of our economy, often to a foreign corporation. A small shift of 10% in government procurement spending would…

There is one reason only that Canada owes billions upon billions of dollars to large foreign banks and it might shock you to know that we could be debt-free right now if only our government hadn’t…

In 1955, people and corporations contributed equal amounts of income tax to the Canadian government. Today, for every $1 corporations pay in income tax, Canadians pay $3.50. At the same time, the filthy rich are hiding billions in offshore tax havens and Canada seems to be one of the only countries not pursuing them…

Summary of Solutions

Strategy 1: Economic measures that include people and the planet

If we want a new way forward, we need to begin with a vision and figure out how we will know if we’re moving in the right direction. Canada currently measures our country’s progress based on the Gross Domestic Product (GDP) which actually includes activities that are detrimental to society and the planet, such as deforestation, strip mining, over-fishing. Even wars and national disasters, like the one we’re facing now, can be a boom to GDP as a result of increased government spending. 

The GDP has long been criticized for failing to take into consideration key factors such as poverty, inequality, education, health and wellness, job security, carbon emissions, and basically anything else related to our quality of life or the sustainability of our natural resources. 

So to create a new economic model, we need to start with a different definition of progress and a set of indicators that measure quality of life and the well-being of people and the planet.  

Fortunately, we don’t have to look far. Countries around the world have been testing and refining new methods of measuring progress including instruments like the World Economic Forum’s Inclusive Development Index (IDI) and the Genuine Progress Index (GPI) that are already being used to give a more accurate picture of a country’s true economic performance.  

Solution for Canada: adopt the IDI or GPI to measure progress. It won’t cost us anything and is simply a matter of government will.

Strategy 2: Collective and Public Ownership

“The three wealthiest people in the United States — Bill Gates, Jeff Bezos, and Warren Buffett — now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households.”

In the mid-1970s, countries around the world, including Canada, began shifting their economic model to a capitalist approach that transferred control of our economy from the public to the private sector. This approach has been almost single-handedly responsible for the financial meltdown of 2008, the offshoring of wealth and power, increasing poverty, the slow demise of public health and education, and even the rise of Donald Trump.  It is THE reason that 3 people can own more wealth than 160 million, and nothing short of total insanity.

To create an economy that works for everyone, we need a different kind of business ownership model – one that creates wealth for as many people as possible and we don’t have to look far to find tried-and-proven models. 

The Mondragon Co-operative is one of the best known examples of how an entire region can shift their economy to collective ownership.  Devastated by wars and the Franco dictatorship, by the 1950s—the economy of the Basque region (a population of 2.2 million) was destroyed. Poverty, hunger, unemployment and depression were rampant. A young priest convinced a few technical school graduates to set up a small worker-owned co-operative to make parafin wax stoves. 

Since then, the Mondragon Co-op has grown to include 266 co-ops operating in 97 countries, with annual sales exceeding $18 billion – equivalent to those of Kellogg’s or Visa. It employs more than 80,000 people (half of whom are women) and all worker-owners share in its profits. It has its own employee benefit package with health care, pensions, unemployment insurance, education and training, as well as a co-operative university and technical schools that provide ongoing innovation, vocational training, skills development. Locally-owned credit unions finance the growth and development of new worker-owned businesses and build community wealth.  

This shift to a democratic ownership model not only built the Basque economy, it has demonstrated to the world for more than 70 years that democratically-owned and operated businesses can be more productive, sustainable, and even more profitable than many large corporations.

Canada already has thousands of examples of collectively-owned and democratically-governed businesses operating in every sector of our economy from agriculture and forestry to manufacturing, technology, housing, financial services, and much more. They even own public utilities, like community energy and broadband, as well as public institutions including schools, universities, health care, transportation, and other services that are usually given to large foreign corporations to run. 

Canada’s co-operatives create $55 billion in economic value, are twice as likely to succeed, and are particularly resilient during challenging times, like now. 

Following the 2008 financial crisis, co-ops actually grew at three times the rate of the economy in general and created six times as many jobs. 

Yet for some bizarre reason, the federal government provides no supports whatsoever to co-operatives and even excludes them from some programs. 

In 2012, during the International Year of the Co-operative, when almost every other country in the world increased their support for co-operatives in recognition of the tremendous contributions they make, our federal government cut ALL funding for co-op development and dismantled the Rural Secretariat responsible for them. Since then, there have been no federal supports to advance the growth of co-operatives.

Solution for Canada:  Shift away from the dominant capitalist business model to collectively and publicly owned enterprises with double or triple bottom lines. There are LOTS of ways this could be done such as is those covered in the next section.

Strategy 3: Local and Social Procurement

“$4.50 out of every $10 spent in New Brunswick leaves the economy, followed by PEI at 44%, NL at 38%, and NS at 35%.

Shifting the Atlantic Canada leakage rate by just 10% would create 43,000 new jobs, $2.6 billion in new wages, and GDP growth of $4.7 billion.”

Atlantic Canada has been in a trade deficit position for many years, importing $11 billion annually more than we export, and “leaking” money  out of the community, often to a foreign corporation. 

Studies show that every dollar spent at local businesses creates 2-4 times more jobs than an outside business.

Every year, our federal and provincial governments procure $200 billion in goods and services – most of which goes to large or foreign corporations. Just a small shift in this spending would create tens of thousands of jobs.

There are many tried-and-proven examples of how local procurement can do this. Take Preston, UK and Cleveland, Ohio. Both cities had been devastated by the 2008 financial crisis, global competition, and the outsourcing of manufacturing to foreign countries. Community leaders inspired by the Mondragon Co-op model convinced just a few of their “anchor institutions” to shift a small portion of their procurement spending to local small businesses, co-ops and social enterprises. 

Anchor institutions are things like hospitals, universities, schools, prisons, government offices, and other public or private organizations that are likely to be in the community long term and have a stable, ongoing demand for products and services, as well as annual budgets in the millions of dollars.

“Preston has experienced a large reduction in its unemployment rate, down to 3.1% last year compared with 6.5% in 2014, while it has also seen improvements above the national average for health, transport, the work-life balance of its residents, and for the skills among both the youth and adult populations.”

In Preston, this one small change to procurement spending sparked a cycle of job creation, increased municipal tax incomes, civic regeneration, and investment. In less than six years, they turned their entire economy around and in 2018, was named the most improved city in the United Kingdom. 

Cleveland had exactly the same experience. By shifting a small portion of a few anchor institutions’ procurement spending to three worker co-operatives – Evergreen Energy Solutions, Green City Growers and Evergreen Cooperative Laundry, in just a few short years they created of hundreds of living-wage jobs for some of the poorest people in the city. Each co-op is owned by the workers themselves who share in the profits, have comprehensive health care benefits, and even a home ownership plan.  

Another way public procurement has been used to reduce poverty and address many other issues that cost taxpayers money and affect our communities is called Social Procurement

There are a number of ways social procurement is done, such as Community Benefit Agreements and Community-Driven Outcomes Purchasing, however they all go something like this:  

Rather than using the standard criteria for awarding tenders (i.e. lowest price) there are additional “points” for social cost-savings/improvements and a set of expected social or community outcomes built right into the criteria and that must be met by the contractor. 

“For every $1 invested, $2.23 of social and economic value is created for construction-related purchases from social enterprises in Manitoba. Workers have also been found to have a significantly lower recidivism rate.”

There are several examples of social procurement happening in Canada that have been proven to reduce poverty, inequality, and costs to taxpayers. 

However they pale in comparison to what COULD be done and what IS being done around the world. 

Take Scotland. In 2014, its commitment to social procurement was enshrined in legislation and their economic development strategy. Any company receiving a public contract must meet sustainable procurement duties aimed at improving the social, environmental and economic well-being of the community in which the work is being carried out, with a particular focus on reducing inequality.  

In just two years, Scotland’s Social Procurement strategy resulted in:

  • 10 times the number of contracts issued with community benefit requirements
  • 3 of 4 suppliers awarded contracts were locally-owned small businesses, worker co-ops and social enterprises 
  • 87% of suppliers paid the real Living Wage 

Today, Scotland is one of the strongest economies in the world with the highest productivity and lowest unemployment rates in the UK. Median income has grown 21% and exports are at a record high, up 44.7%. 

Solution for Canada: Our federal and provincial governments, could easily follow Scotland’s lead and use local and social procurement to build stronger local economies and reduce poverty and inequalities. While there are some free trade and other conditions that must be adhered to in public procurement, there is far more flexibility than most people realize under their Exemptions, Exceptions and Exclusions. So once again, it’s really just a matter of government will. 

Strategy 4: Different Banking and Financing Models

“Last year, Canada’s six largest banks dished out $15 billion in bonuses, not including stock options for CEOs with special tax privileges. And according to the industry, that wasn’t enough.”

Public Banks

Between 2010-2015, profits in the banking sector soared by 60% while their tax rate dropped by almost the same amount, resulting in Canada’s six big banks paying the lowest corporate tax rate in the G7 – one-third of what other Canadian businesses pay. 

In 2016, these banks were ranked the nation’s most profitable corporations, booking $44.1 billion in profit. That same year, they avoided paying $5.5 billion in taxes.  

How did they get so rich and powerful? It all started in 1974 as the neo-liberal capitalist model took hold.

In the fifty years before then, Canada’s publicly-owned Bank of Canada financed everything interest-free. It was responsible for funding our economic recovery from the Great Depression and World War II, financed the creation of the world’s third largest navy, provided education and farmland for veterans, established Canada as a leader in aircraft manufacturing, built the Trans-Canada highway, St. Lawrence Seaway, airports, subway systems, and financed old age pensions, family allowances, universal Medicare, nation-wide hospitals, universities, research facilities and more. 

This was all done by borrowing interest-free money from our own public bank.  

Then in 1974, our government stopped this practice and started borrowing money for our public and infrastructure projects from large, foreign banks and paying huge interest rates. (Why would they do such a crazy thing? Greed, power and politics

By 1981, Canada’s interest rate had risen to 22%, effectively doubling our debt in less than four years. 

We have now paid over a trillion dollars in interest — nearly twice the debt itself. Today, Canadians pay nearly $1000 per second in interest – and this doesn’t include the interest on our provincial debts. 

“If Canada had been borrowing from the Bank of Canada all along, we could be not only debt-free but sporting a hefty budget surplus today.”

Solution for Canada: Once again, there is a simple solution to our rising national debt. 

Simply restore the Bank of Canada as a public lending institution. It doesn’t even require changes to legislation, as was recently ruled by our federal court

But we shouldn’t stop there. Provincial and municipal governments can adopt public banking models. There are over 700 public banks around the world with combined assets near $38 trillion — about 48% of global GDP — that we can learn from and plenty of evidence that they reduce taxpayer costs, increase economic activity, and build local economies. 

Credit Unions and Caisses Populaires

Credit unions and caisses populaires offer all the same services as a bank. However rather than maximizing profits for faraway shareholders, they are locally-owned non-profits whose goals are aimed at providing a higher quality of service to member-owners, at fairer prices, and reinvesting their profits back into the communities they serve. 

Canada already has the highest per-capita credit union membership in the world, with nearly six million people being a member-owner.  At the end of 2019, our nation’s credit unions collectively had $246.5 billion in assets, a gain of 6% over the previous year. They are stable and growing, even without the big corporate tax breaks and evasion methods of big banks….and in spite of the huge regulatory barriers they face. 

Following the 2007-2008 financial crisis, the federal government introduced changes to capital and liquidity rules that put credit unions at a huge disadvantage compared to the big banks. 

Then in 2013, the Harper government eliminated the federal tax benefit for credit unions, putting them at an even greater disadvantage and less able to compete.  

The Canadian Credit Union Association’s “Credit Union Tax Policy Modernization” report recently submitted to government offers four recommendations to close the tax gap as federal finance officials work to finalize a proposed budget due out in the next  few weeks. 

Solution for Canada: Make changes to legislation that create a fairer playing field for credit unions and caisses populaires that keep our money circulating in our communities rather than giving it to big or foreign banks. This is simply a matter of government will.

Strategy 5: A Fair Tax System

“In 1955, people and corporations contributed equal amounts of income tax to the Canadian government. By 2015, for every $1 corporations pay in income tax, Canadians pay $3.50. The proportion of the public budget funded by personal income taxes has never been greater.”

In 2017, the Toronto Star and Corporate Knights Magazine spent months poring over Canadian tax data to determine how much income tax corporations are really paying. They found that corporate taxes rates had been repeatedly cut over the previous several years and that complex tax loopholes had allowed large corporations to avoid paying the lion’s share of taxes. 

Canada’s 102 biggest corporations avoided paying $62.9 billion in income taxes over the past six years”, paying instead an average of 17.7% tax when small and medium-sized businesses were paying 26.6%.  

Banks in particular reduced their taxes by a whopping 75%, while businesses in the rest of the economy (including  credit unions) paid triple the rate of big banks. 

This loss of revenue translates into tens of billions of dollars that could have been used to pay for hospitals, schools, roads, and to address climate change.

Here in New Brunswick, we don’t need to look far to find examples of corporate tax shelters and tax evasion. We have one of the country’s biggest culprits right in our own backyard. 

The Irving Group is the umbrella corporation for more than 200 companies in oil and gas, forestry, shipping and transportation, retail, media and more, with an estimated net worth of $10 billion.  K.C. Irving is known for being one of the earliest pioneers in the exploitation of offshore tax havens, making his sons relinquish their Canadian residency and live in Bermuda in order avoid paying taxes when inheriting his $16 billion empire.  

There are literally dozens of examples of how the Irving Group has avoided paying their fair share of taxes or been given corporate subsidies, forgivable loans, and other concessions that have cost taxpayers a fortune over the past several decades. Some would say that the reason our province is in such a desperate financial situation is due to the billions in lost revenues to one of the richest corporations in the country.  Again, this is all public money that could have gone to health care, education, infrastructure, and paying down our debt.

It’s not just corporations not paying their fair share

“Overall, including domestic and foreign tax dodging, Canada’s tax gap is now estimated to be at least as much as $14.6 billion a year based on 2014 data — the equivalent of 5.3% of all federal revenues. That’s enough money to plug the entire projected federal government deficit for next year.”

The controversial 2016 Panama Papers revealed a global tax evasion system that has been allowing the wealthy to hide trillions of  dollars worth of assets in offshore tax havens. Nearly 900 Canadians were on the list and Canada promised to put $1 billion into the investigation and hire 1,300 auditors. Three years later, they had only hired 192 and hadn’t recovered a single dollar! 

At the same time, other countries around the world had <a href="