Every day, new figures and stories come out describing Europe’s decay into virtual anarchy. Once known for providing its workers with a relatively stable standard of living, one European country after another is pushed into crisis and austerity, provoking social explosions across the continent. New reports from several leading financial institutions reveal that the European contagion is rapidly spreading across the Atlantic and threatening to overwhelm Canada’s own shaky situation.
Last month, the New York Times had a shocking article on the day-to-day effects of the economic crisis in Europe. In this article, the author described witnessing Spanish youth in Madrid having to forage in the garbage in order to find food to eat, unable to overcome the 54% unemployment rate plaguing Spanish youth. And this is not an isolated case. In Greece, many public sector workers have not been paid in months; hospitals have run out of medicine; and immigrant workers are repeatedly beaten by fascist gangs.
Looking at the situation across Europe, there can be no doubt about the severity of the crisis and the political consequences it is having. But, the Canadian ruling class has taken a certain satisfaction in asserting that this country is above the European fray. Do these claims actually have any weight? Or, does the Canadian economy have the same underlying weaknesses that have brought European capitalism to its knees?
Myth: Canadian indebtedness is not as severe as in Europe
One of the main excuses used by the Canadian bosses to claim that the crisis will not affect Canada to the extent it has in Europe is that the level of indebtedness in Canada is not nearly as high as the European states. Certainly, debt servicing levels in countries like Greece have reached a point of crisis; one estimate shows that the Greek government would need to spend a full two-years’ worth of tax income just to pay off its minimum debt servicing over the next four years!
In comparison to the European countries, Canada’s federal debt and deficit appear to be tiny. But, what isn’t taken into account is the amount of debt held by provincial and municipal governments. When these are factored into the equation, things begin to not look as rosy.
Canada’s two largest provinces — Ontario and Quebec — have traditionally been the financial engines for the country, but in both provinces the public debt crisis is beginning to approach European heights.
In Quebec, the outgoing provincial Liberal government identified Quebec’s indebtedness as the single largest issue facing the province. It went to war with the student movement (and, by extension, the rest of Quebec society) over the need to end the “culture of entitlement” it felt that the working class had grown accustomed to. The ruling class in Quebec made it clear that Quebec’s debt-to-GDP ratio, which is rapidly approaching 100%, could not be sustained. In their view, the time has come for the province to start paying up if it hopes to remain competitive on the world market, and attract investment and capital over other jurisdictions.
A very similar situation is shaping up in Ontario. Up until recently, the province had a relatively low debt load. However, the economic crisis has rapidly changed the province’s fortunes. The province has racked up record government deficits since 2008 and the economy is yet to recover from the crash. In fact, Don Drummond, the former chief economist for Toronto-Dominion Bank and one of Canada’s top bankers, released his infamous report earlier this year that contained dire predictions for Canada’s largest province. In his opinion, Drummond foresaw growth rates of under two per cent for the “foreseeable future”, and a government that could see its provincial deficit climb to $30-billion by 2018. Without harsh “permanent” austerity measures taken now, Drummond predicted that Ontario’s debt-to-GDP ratio would surpass 100% by 2018.
This 100% debt-to-GDP threshold is an important barrier for the bankers and financiers who worry about the provinces’ ability to repay their debts. Much has been made of the euro-zone’s indebtedness, but Quebec’s total debt load is already higher than that of the UK or France. In fact, even Ontario’s debt load has surpassed that of Spain! (Debt figures are based on numbers published in the Guardian.) Already, Ontario had its credit rating dropped by Moody’s, one of the three main international credit agencies. A second one, Standard & Poors, has also threatened Ontario with a credit rating drop. What this means is that investors are demanding higher interest payments in order to entice them to loan money to the Ontario government.
But as bad as government debt may be in Canada, it is the level of consumer debt that is the greater worry at the moment. As this article is written, a number of key financial institutions have released reports that warn that Canadians’ individual debt is unsustainable. Consumer debt in Canada has now reached an average of 163.4% of annual income — approximately the same level that was reached by US households just prior to financial collapse in 2008. To put this number into historical perspective, a CBC article estimated that Canadian consumer debt was roughly 75% of annual income in the early to mid-1990s.
Furthermore, Canadian indebtedness is further complicated because Canadians are so reliant on the value of their homes in order to finance their borrowing — even more so than Americans were prior to the real estate crash in the USA.
It is becoming increasingly apparent that a slowdown in the Canadian housing market has arrived and potentially could have a devastating effect on ordinary Canadian workers. A recent analysis by TD Bank estimated that Canadian real estate is overvalued by 10% on average in most markets; however, in some markets like Toronto and Vancouver, housing could see a 25% price correction. Already, the Canadian Real Estate Association (CREA) has seen an average drop of 15.1% in home sales between September 2011 and September 2012. This sort of drop in value could devastate hundreds of thousands of families who have depended upon the booming housing market to finance their lives.
A recent CBC article quotes Capital Economics, a financial consulting firm, which warns, “Overall, this supports our bearish view that Canada’s housing boom is unsustainable and the eventual correction, which we think is already underway, is likely to have material negative implications for growth in the broader domestic economy.”
The International Monetary Fund (IMF) has even stepped into the fray to warn the federal government that more measures need to be taken to “protect” ordinary Canadians from this unsustainable level of debt. In June, the federal Conservatives legislated new mortgage practices that limited fixed-term mortgages to 25-years, down from 30-years previously. In theory, this meant that Canadians would have to have more money saved up before they could purchase a home and would be subject to taking on less debt in the future. Moreover, it would also eliminate some people with questionable finances from taking on massive debt loads.
Although the mortgage changes have had the effect of lowering home sales, prices in most markets have yet to come down. But, it is inevitable that the price correction will come. The stock of housing that is being created is mind-boggling; the consensus amongst the top bankers is that a classic housing bubble has been created and that it is ready to pop. In Toronto, there are over 120 highrises that are under construction or scheduled to begin construction over the next two years; the vast majority of these are condo towers, meaning an influx of over 300,000 new housing units onto the market in the next few years (original figures were published in the Toronto Star). The city with the next highest number of highrises under construction in the world is Mexico City — with just over 30!
There is not a single banker or economist who questions the massive housing bubble that has formed across Canada. And, there is very good reason for worry amongst these gentlemen. Spain, one of the countries in the greatest dire straits at the moment in the European Union, saw a very similar housing boom leading up to the 2008 crash. At one point, Spain accounted for 40% of all new home construction in the EU, despite only having 9% of the EU’s population. The housing bubble played a key role in the Spanish economy’s subsequent free-fall.
But, are the Marxists simply being alarmist in raising fears of a Spanish-style catastrophe in Canada? The CBC’s Neil MacDonald spoke with Don Drummond on what an overheated housing market, combined with astonishing levels of personal debt, could mean to ordinary Canadians:
“[As] the Bank of Canada has been pointing out, Canadian debt is disproportionately concentrated in the most vulnerable households, defined as those devoting 40 per cent or more of household income to paying interest charges. That means those households are extremely sensitive to any sort of shock — be it a rise in interest rates, a drop in home prices, or, worst of all, job loss.
“The central bank’s analysis suggests that if interest rates rise to 4.25 by mid-2015 [a likely target set by the Bank of Canada], fully one-fifth of all Canadian debt would be held by those households least able to finance it.
“‘That is rather scary,’ says Don Drummond, a former federal mandarin who also spent many years as the chief economist of the TD Bank.” (CBC News, 20 Sep. 2012)
Myth: Investment by Canadian business will bring down unemployment
A second major myth perpetuated by the Canadian ruling class is that Canada does not have an unemployment crisis like Europe or even the United States.
Certainly, the crisis of joblessness in this country is not nearly as severe as in Greece, Spain, or Italy. But, Canada’s unemployment rate has hardly budged since the crisis first began, sitting stubbornly between seven and eight per cent. Furthermore, the Canadian unemployment rate is a deceiving number that does not necessarily reflect the actual conditions of working-class people. Statistics Canada, for instance, has repeatedly mentioned the number of workers who have been re-classified as “self-employed” since the beginning of the economic crisis and who are no longer recorded by the government as being unemployed. Many have been forced into self-employment because they could find no jobs in their fields or careers and are trying to eke out a living by selling their own services — a highly precarious situation that plagues most of the self-employed.
The unemployment rate also does not reflect workers who have completely left the labour market and are permanently on social assistance, a very common condition in de-industrialized areas of the country such as the Maritimes. Similarly, the unemployment rate does not reflect the number of workers who have been forced to find new jobs at much lower rates of pay. This is of particular concern in the manufacturing heartland of Ontario and Quebec where firm after firm has closed production or shut down jobs, only to be replaced by much lower paying jobs that are often not unionized.
Investment is also an area of concern. Despite record-low interest rates and massive loans and subsidies by all levels of government, the level of corporate investment in Canada remains at nearly record-low levels and is approaching a near crisis point in the eyes of Canada’s top banker.
In a sharply-worded rebuke to Canada’s capitalist class, Bank of Canada governor Mark Carney pleaded with the bosses to open up their coffers and to begin re-investing in Canada’s economy. Canadian firms were estimated to be sitting on over $560-billion in cash reserves, which Carney labelled as “dead money”. Carney berated Canada’s so-called captains of industry saying, “Their job is to put money to work, and if they can’t figure out what to do with it, they should give it back to their shareholders.” (Globe and Mail, 27 Sep. 2012)
No moral or ethical reasoning will get the Canadian bourgeois to invest in the economy if they have little or no confidence in their ability to make a profit for their investors. As mentioned earlier, Don Drummond’s own report to the Ontario government only foresaw the feasibility of anaemic economic growth.
The Bank of Canada conducted their own study on business intentions and found an increasing pessimism amongst Canadian firms. The October survey revealed that only 37% of businesses had plans to increase investment in the following 12-months, down from 43% in the July 2012 survey. Furthermore, the number of firms that actually planned to decrease investment had climbed to 29%, up from 19% in July. The gap between firms increasing investment and those decreasing investment had shrunk to its lowest level since 2009 — at the height of the “Great Recession.”
The captains of industry cannot lead Canada because they have no faith or confidence in their own system. Why throw good money after bad? If the capitalists do not believe in the capitalist system, why should the rest of us?
Myth: Canada is a peaceful and democratic society
In 2011, Fightback published its perspectives for Canada and titled it, “Can revolution come to Canada?” Many scoffed at the idea of revolution coming to sleepy old Canada. 18 months later, we think that this idea is much harder to dismiss out of hand.
The old notions and myths about Canada are rapidly being thrown on their head. The idea that Canada could not be home to a radical mass movement that challenged the existing order of things was thrown out the window with the magnificent Quebec student movement, which at its height drew as many as 400,000 to the streets of Montreal in an epic defiance of the ruling Liberal provincial government of the time. More importantly, the student movement scored a hard-won victory by forcing the newly elected Parti Québécois government to eliminate the planned tuition increase (at least temporarily), repealing the anti-democratic Law 12, and defeating the Liberal government in September’s provincial election and forcing ex-premier Jean Charest out of political life.
The fact that the former Charest government had to go to the wall in its fight with the students shows the developing ferocity of the class struggle in Canada. The crisis is very real and despite the public claims of strength, the Canadian ruling class is aware of the financial risks present and the need to push through austerity in order to restore financial equilibrium — at all costs, if necessary.
The bosses across Canada have made it clear that nothing can stand in the way in their fight against the financial crisis. Even old democratic “niceties” may be put on the chopping block if they get in the way of the dirty tasks faced by the capitalists today. Although the situation has not quite reached the measures used in Europe, the political landscape across Canada has begun to change and it is vital that the labour movement re-orient itself in order to fight back against the bosses’ push.
The assault on democratic rights in Canada have been almost unprecedented in their breadth; moreover, they almost seem to have become de rigeur in this climate of austerity capitalism. All levels of government across the country are regularly introducing back-to-work legislation, essentially taking away workers’ right to strike. In the past, governments tended to reserve this type of legislation to public-sector workers who were deemed to be “essential”. However, over the last period, everyone from teachers to transit workers to university teaching assistants have come to be deemed “essential” by various levels of government. Moreover, governments have also begun to intercede in private-sector labour disputes, siding with private-sector bosses. This has been most noticeably used by the federal Conservatives in taking the right-to-strike away from workers at Air Canada and Canadian Pacific Rail.
The right to collective bargaining has also been under vicious attack, particularly in Ontario. In the last provincial budget, the Ontario Liberals demanded a two-year wage freeze from all public-sector workers in the province. Frustrated by the fact that in some cases labour arbitrators were continuing to issue small wage increases, the Ontario government even threatened to sidestep collective agreements and directly legislate wage freezes on government workers!
Finally, different shades of governments have shown little qualms in trampling even over the most iconic of Canadian documents — the Canadian Charter of Rights and Freedoms — in order to make sure that the austerity agenda can be implemented. In 2010, we witnessed the state brutality around the G20 summit in Toronto, where over 1,100 were arbitrarily rounded up and jailed — including many who had nothing to do with the summit and were simply caught at the wrong place and the wrong time. The Ontario Liberals introduced a secret law (subsequently ruled to be unconstitutional well after the fact) where the police could arbitrarily stop, question, and search anyone in Toronto’s downtown core. People who were rounded up and caught by the police were even denied right to legal counsel, a further vicious attack on the most fundamental democratic rights that Canadians are supposed to enjoy.
The Quebec government’s response to the student strike was just as draconian. The hated Bill 78 (which later became Law 12) banned gatherings of greater than 50 people, and banned demonstrations which did not consult with the police before hand — an attack on the right to free assembly guaranteed under the Charter. Furthermore, the police used almost unprecedented violence in quelling almost any protest that arose, including regular (almost daily) use of pepper spray, chemical gas, and plastic bullets. Several students even lost their vision because of the police’s use of plastic bullets.
The situation certainly bares little similarity to the myth of “peace, order, and good governance” that is instilled into Canadians!
Across Western Europe, pre-revolutionary situations are rapidly crystallizing. Although the capitalist decay in Canada may not be quite as advanced as Europe’s, the economic and societal changes taking place indicate that Canada is headed in the European direction as well, and this means the possibility of revolutionary conditions popping up.
It is not just the Marxists who are pointing out the similarities between the collapse of European capitalism and the worrying stats coming out of Canada. Some of the more far-sighted members of the bourgeoisie are beginning to see that the Canadian economy is headed down the same path and with it, the same sort of social convulsions that are currently rocking Greece, Italy, Spain, and the other members of the euro-zone. But despite this outlook, there is little they can do to forestall these events — this is the logic of their system.
It is necessary now for Canadian workers to learn from the European experience, including the workers’ fight back, because it is only a matter of time before these struggles become ours.
