And now that the federal NDP seems to be recoiling from criticism of new trade and investment deals, the Harper Conservatives will be free to exaggerate — even fabricate — the benefits of Canada’s quarter century-long experiment with ‘free trade’. The only opposition the government will face on this file are the facts.
Far from spawning higher levels of investment and GDP growth, Canada’s great era of trade and investment liberalization — which began with the Canada-U.S. Free Trade Agreement in 1988 — has been marked by underinvestment and sluggish growth in both employment and GDP.
In the 25 years prior to 1988, the rate of growth of business investment in fixed assets — a key driver of growth — averaged 4.8 per cent per year. Private sector employment grew at 2.4 per cent and GDP per capita at 2.8 per cent. All three growth rates were halved in the 25 years after 1988, falling to 2.4 per cent, 1.3 per cent and 1.2 per cent, respectively. What’s more, the average unemployment rate increased from 7.1 per cent to 8.1 per cent between the two quarter-century periods — a statistic which ignores the rise of more precarious forms of employment.
How do we explain the disconnect between political cheerleading for trade and investment liberalization agreements (like the CETA) and Canada’s poor investment, employment and growth performance in the free trade era? The answer has as much to do with power as it does with markets.
The trade and investment liberalization regime led to rapid and relentless restructuring of North American corporate ownership by opening the door to the two largest merger waves in Canadian history. On the world stage, these merger waves led to higher levels of Canadian corporate ownership abroad. Domestically, heightened amalgamation activity created larger Canadian-based corporations — and the attendant market power that greater size bestows.
Between 1914 and 1988, for every dollar spent on expanding industrial capacity, Canadian business spent an average of just 23 cents on mergers and acquisitions (M&A). Between 1988 and 2013, an average of 93 cents was spent on M&A for every dollar ploughed into industrial capacity — a four-fold increase. Large firms are spending nearly as much acquiring their rivals as they are on new structures and an expanded workforce.
So what are the consequences of this amalgamation-fuelled concentration? The causes are complex, but the facts suggest that increased corporate concentration — power, in other words — has contributed to both slower GDP growth and heightened income inequality.
Unlike investment in fixed assets, which results in the creation of new structures and expanded employment, M&A is wholly an act of redistribution: It reallocates corporate ownership claims between proprietors, the purpose of which is to gain a larger income share. My research (contained in a recent report for the Canadian Centre for Policy Alternatives) confirms that amplified M&A activity has redistributed profit and assets up the corporate hierarchy, towards large firms.
In 1950 the largest 60 firms accounted for 29 per cent of total corporate profit, and that ratio had not significantly changed by 1993. With the inception of the NAFTA in 1994 (and related government assurances regarding the ‘safety’ of foreign investment), Canada witnessed two of the largest merger waves in its history and corporate profit concentration doubled. By 2011 the top 60 firms accounted for a stunning 58 per cent of profit, twice its share of 20 years earlier. The story is similar with asset concentration. In 1961 the largest 60 firms held 27 per cent of total corporate assets, rising to just 30 per cent in 1991 before reaching 46 per cent by 2010.
The increased market power of large firms is tightly intertwined with the redistribution of income from labour to capital — owners at the expense of workers. And because the top Canadian income group owns and effectively controls the largest firms, the concentration of corporate income has meant the convergence of personal income towards the richest income group.
But the redistribution of business investment away from fixed assets towards M&A has also meant that fewer corporate resources are deployed in the expansion of industrial capacity, with more ‘dead money’ stockpiled on corporate Canada’s balance sheet, both of which put downward pressure on GDP growth.
It may be an unwelcome conclusion, but the enduring significance of free trade and liberalized investment has been an amalgamation-driven increase in corporate power — which has depressed growth and exacerbated inequality. Don’t expect any of this to be mentioned in the 2015 campaign, of course. But if Canadians ever want to overcome these afflictions, we’ll have to stop believing the hype.
Original Article
Source: ipolitics.ca/
Author: Jordan Brennan
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