Jahangir: Save the real economy, not the big corporations
By Junaid Jahangir
The Economic Recovery Council of Alberta includes powerful names like Stephen Harper, Jack Mintz and several CEOs of financial institutions and corporations. This council has been formed to grapple with the downturn due to the COVID-19 outbreak and falling energy prices.
The composition of this council suggests that the economy is only made up of CEOs and other highly paid individuals. Starkly absent are the voices of everyday workers: teachers, health care workers, grocery and sanitation workers, amongst others. The voices of the CEOs are being privileged over those of the everyday workers, who are part of the real economy.
Now if people are driven by self-interest, as is often assumed in a free market economy, then it is clear that the prescriptions of this council would be skewed to protect self-interest instead of the real economy. It is therefore not surprising that calls are being made to downsize the public sector and to prepare the everyday worker for fiscal austerity.
One may argue that the interests of the CEOs and the workers are aligned, but in a world of massive inequality that is simply not true. After all, profit maximization assumes cost minimization. This means that costs of inputs like labour are minimized in order to maximize the wealth of the powerful.
Economics students learn that from 1990 to 2009, worker compensation increased by 7.5 percent but CEO compensation increased by 80 percent in the U.S. The numbers for Alberta follow a similar pattern. In a similar timeframe, the primary author of Follow the Money: Where Is Alberta’s Wealth Going? Kevin Taft, discovered that whereas personal incomes increased by 35 percent, corporate profits increased by 317 percent in Alberta.
So it is imperative to have an inclusive Economics Council instead of one made up of the rich and powerful. For instance, amongst the council members, Bob Dhillon has assets worth more than $650 million and owns a 2,700-acre island in Belize. Others include Clive Beddoe with a net worth of $93 million. Even a public servant like Stephen Harper has a net worth of $7 million and easily makes $238,428 per year as a director just like Jack Mintz with $258,675.
Do any of these reflect the economy that is composed of millions of people who earn much less than they do?
Nobel Laureate Paul Krugman has clearly written on the austerity delusion and the legacy of destructive austerity. Alberta should know well about this given the massive cuts under Ralph Klein and those being witnessed under the current UCP regime. Recently, Krugman wrote “The most prevalent zombie … is the insistence that tax cuts for the rich produce economic miracles, indeed pay for themselves; … And COVID-19 has brought out all the usual zombies.”
Fellow Nobel Laureate Joseph Stiglitz also recently wrote: “So the first priority is to restore our balance: provide more funding for the public sector … If some corporations don’t make it, there is Chapter 11 of the bankruptcy code, which … makes shareholders and executives pay a price. That’s the way it should be under capitalism: with high rewards comes risk, responsibility, and accountability.”
In essence, Nobel Laureates and other leading economists are warning against big corporation bail outs, rejecting tax cuts for the rich and promoting fiscal stimulus for the everyday worker. Albertans can listen to them or the millionaires appointed on the Economic Recovery Council who would simply pursue self-interest. Economic theory recognizes this self-interest through the framework of utility and profit maximization, rent seeking and lobbying efforts of interest groups.
I think it’s time to reiterate the lessons from the 2008 financial crisis that bailing out corporations and tax cuts does not work. It only feeds CEOs, who get away with millions at the expense of hardworking taxpayers. It is important to recognize that all these complex mathematical and statistical models used to justify tax cuts and bailouts should be of no consequence, as equally complex models were used to sell mortgage backed securities that brought on the financial crisis.
We must emphasize that the real economy includes everyday hardworking people and that the budget is for them, not the other way around. Corporatization where senior management earns excessively higher than the equally hardworking workers needs to end. And if financial crises or COVID are nature’s way to end these corporations then let them die like the dinosaurs and we can finally build an economy that values the contributions of nurses, teachers, grocery and sanitation workers, the everyday workers who are the real economy.
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