On episode 8 of Family Compact, we were joined by Sheila Block, senior economist at the Canadian Centre for Policy Alternatives, to discuss the Doug Ford government’s recent “spending review”, its approach to labour law and worker protections, and some broader economic issues facing Canada. The following is a transcript of the conversation.
The Cable: So I wanted to start with what I think is the big issue in Ontario politics right now, which is the spending review commissioned by the Ford government and delivered by Ernst and Young last week, and I hope we can just start by doing a quick overview of what the spending review is and why you think it’s important.
Sheila Block, Senior Economist with the Centre for Policy Alternatives (Ontario): I think the spending review was one piece of the puzzle. Just before the release of that review there was an expert panel that looked into the fiscal situation of Ontario and the spending review was kind of the second step in that process. And I think we have to understand it is a really ideological process. And what it is aimed at doing is painting the former Liberal government as out of control spenders and painting the current government as the fiscal savior of Ontario.
The Cable: If we can talk a little bit I guess about the Liberal government to begin with. You know Doug Ford has made a big deal about their supposed out of control spending as he puts it. And this report highlights spending increases of $49 billion over the past 15 years. And I guess people in politics often throw these numbers around as if $49 billion means anything to the average person. Can you put that number in context for us. Is it a lot? Is it a little? How should people think about that figure?
SB: Well I think you’ve really pinpointed a problem here. If you or I had $49 billion in our bank account that would be really a lot of money and scale is hugely important here. So what we know is that the Ontario economy grew by much more than that. And most importantly, buried in that Ernst and Young report, was the information that the Ontario government spending as a share of the total economic activity in Ontario actually dropped slightly. So the economy was growing over the last 15 years. Government spending was growing along with it but was in fact growing more slowly. And that’s I think the really important context for that that $49 billion number
The Cable: And these are things you just sort of have to spend money on, right. I mean you have an aging population you’re going to spend more money on health care. It’s not clear to me how that would be something that the government could necessarily control better unless they were willing to make cuts to those programs that reduce services. Is that a fair assessment.
SB: I think it’s a pretty fair assessment. If you want to reduce spending you’re going to decrease the quality of this. I think when new governments come into power they have a right to say, “OK, we have a change in priorities here.” And I don’t think I would say that every single dollar that the Liberal government spent over the last 15 years even on programs was spent in absolutely the most effective way possible.
But those kinds of exercises that try and decrease spending in these areas through austerity have a couple of common themes that I think we see in that Ernst Young report. The first of these is that there’s going to be an emphasis on privatization and contracting out. And there are two fundamental problems with that. The first is that privatization and contracting out generally winds up being more expensive. And the reason for that is the need for profit, right. Private sector operators quite legitimately need to make a profit, and governments don’t.
The other big problem with that privatization and contracting out has to do with quality of services. And when you try and impose markets or market disciplines on caregiving activities, you always wind up with some pretty big problems. Because markets work really well if you’re trying to sell steel bars because it’s very easy to specify the kind of steel bar that you want and to get a good price for it. But when we’re talking about caring for people who are sick or caring for our children while we’re off at work or educating our children, that kind of privatization is really generally a recipe for worse services and worse outcomes.
The Cable: Right. So I think you’ve touched on one of the big themes that runs throughout this report which seems to be written in such a way as to discourage anyone from actually reading it. But the privatization scheme is certainly a current that runs throughout it. I’m wondering if can you break down a couple of the big I “solutions” in the report that are now on the table for this government.
You know, it’s kind of tough because as you said the report is quite impenetrable, a kind of combination of MBA-speak and and very dense policy-speak.
What’s clear is there is a thread running through it around deregulation. And when we think about deregulation and reducing red tape I think the thing that has to be very close in our minds was the Walkerton tragedy, which came under the previous Conservative government here in Ontario, where we actually saw contamination in the water system in a town called Walkerton, Ontario and deaths resulted from it.
So we have to be really clear about what the impact of deregulation is, it’s not necessarily getting rid of unnecessary red tape. It’s really about protections for our environment protections and for ourselves as well.
A second thread that I think is there, with a number of phrases around modernising and jointly sharing the benefits of increased productivity, is really taking aim at public sector unions. Both in terms of protections for private sector workers in terms of their work environment and also their remuneration. And we have to remember that despite this report and the new government trying to just paint the Liberals as kind of profligate spenders, there was a period of austerity for a few years in this government that was just kind of unleashed in 2014. And that saw real restraints on public sector wages. So I would expect at minimum a return to that and at worst a kind of a war on public sector workers.
The Cable: Yeah, I loved all the language about agile workforces. I can’t wait until we have Uber for nurses, what could go wrong. So in a piece that the CCPA published a couple of days ago you referred to this process as a frame job. I’m wondering if you can explain what you mean by that and what you think the Ford government is hoping to achieve with this entire process.
Yes, that was a blog post written by my colleagues Trish Hennessy and Ricardo Tranjan, and they took a look at what was analyzed, how it was analyzed, and how it really — in that Ernst and Young report — and how it was really a frame or a context for what’s going to come next in terms of the Fall fiscal update and review. It was billed as a line by line audit.
And it was absolutely nothing close to that, it was a kind of overview of spending over 15 years. And then a number of solutions that, as we’ve mentioned earlier, were kind of hard to get your arms around. It felt like you were moving into a fog when you tried to take a look at them.
So really it’s to frame the previous government as overspending, out of control, increasing debt and to re-frame the current government as fiscal saviors who will bring private sector discipline to government. And harkening back to another Ford regime, getting rid of the gravy train. Unfortunately even this report didn’t find the kind of gravy that had been hoped for I think by the people who paid for this report.
The Cable: So I think that’s a good segue sort of into broader economic issues that this government is going to be tackling or stuff that they’ve already started to talk about. And one of the big ones that I guess motivates this report in some ways is deficits. There’s a big debate about deficits now and especially when I’ve been paying attention to the the U.S. where people like Bernie Sanders’ adviser Stephanie Kelton have argued that we really ought to be running much larger deficits and that our thinking about deficits and debt has been wrong for a long time now. I mean obviously Ontario is a little different than the United States in that we don’t print our own money as a province. But I wonder is this an issue that we have gotten wrong for a long time. How worried do you think people ought to be about this deficit issue?
SB: I think there’s a focus on both deficit and accumulated debt that that is very much so a Conservative narrative. And they try to frame this with very large numbers and try and frame it in in a household manner, to say “you know, if you had this much debt you would be in a lot of trouble,” I think is an intentional mischaracterization. Because as economists would like to say, one of the things about government is that they are infinitely lived.
So if you take an individual family and you say they have this lifecycle, and early in the lifecycle you should be taking on debt. Maybe you’re paying for education, or if you don’t live in Toronto you can actually afford to buy a home. And then you want to reduce your debt as as you get older and as your income decreases.
Governments are infinitely lived. So what happens is you are investing for one generation and then another generation is paying it off and you pay it forward. And you also have the capacity to take risk that an individual doesn’t have. You know, you don’t want to take on too much debt as an individual because what if you suddenly got sick and you couldn’t service it. That’s a different situation for governments.
And so there’s a whole range of differences I guess that I’m trying to illustrate between governments and households and so that storytelling isn’t an appropriate one.
It’s also very interesting that when conservatives talk about the importance of reducing government debt they talk about how interest payments will eat away at government revenues and reduce the amount of money that’s available for programs. But we also know that conservatives actually are very fond of shrinking the role of the state.
So there is one thing that that conservative narrative about how terrible debt and deficits are really leaves out, which is that there are two solutions to reducing debt and deficit. One is a reduction in spending but the other one is the need to increase revenues and that’s something that really we see in Ontario, and this 15 years of Liberal government didn’t take concrete action. We saw a great rate reduction in what economists like to call fiscal capacity of the state, and what people who want to communicate with others actually say means the amount of tax revenue that you’re increasing to pay for the services that you need.
So I think debt and deficits matter to an extent. You don’t want too much of your revenues to be going towards debt service payments on the one hand, and on the other hand you certainly don’t want financial markets determining what you will or you won’t be spending your money on. And that can sometimes happen. But there is no crisis in Ontario debt or deficits, and the appropriate solution to dealing with existing levels has to do with increasing revenue rather than reducing spending.
The Cable: It’s so interesting, the way you presented the issue of government debt and deficit and the story that you just told around it is compelling when you hear it. It’s obvious, but it’s one that you almost never hear from politicians, even progressive politicians. I maybe it’s something they just don’t want to talk about but I feel like the public, because of that, has a very warped perception of what these things actually are.
SB: Well, I think there’s been a compelling narrative for the last 30 years that actually characterizes government spending as wasteful and as not in your interest and has pushed for a reduction of the role of the state. And I think really it’s most helpful to think of the state in some ways as like a giant buying club like Costco.
You can think about it that way in terms of: if we all had to pave the road right in front of where we live. It would be very expensive and inefficient. So we all pull together and we have government provide us with roads. We have government provide us with healthcare. So there are the efficiencies around that and there’s also the piece of government of who we want to be for each other, and how we want to protect people who are vulnerable. So we want to protect people who are sick. We want to protect children and how we can do that collectively as a society and what it says about us.
The Cable: Well, speaking of protecting people who are vulnerable, one of the other issues that was in the news over the past few days has been the minimum wage and the Ford Government has announced that they’ll be canceling the planned increase of the minimum wage to 15 dollars. I’d love to get your take on what the impact of canceling that increase is going to be.
SB: So the impact of canceling that increase will be that there will be increased inequality in Ontario, more than there would have been if it had gone through because fundamentally the increases in the minimum wage and the other changes in labour law and employment standards legislation that were implemented by the government were a shift of incomes from profits to wages. And the impact of that is a reduction in inequality because poor people are more likely to have wages and rich people are more likely to have income from profits.
So what you’re going to see here is an increase in inequality. You’re going to see more labour market poverty than you otherwise would have seen. And that’s the sum total if in fact the wonderful campaign that is currently going on to actually convince the Government to reverse its decision is not successful and we do see the legislation changed so that the $15/ hour is not implemented, then we will see those negative impacts.
The Cable: And you know their justification for this and what you often hear from critics of the minimum wage is that increasing it is going to make everything more expensive and ultimately it will cost people jobs because small businesses either can’t afford the new payroll or they reduce shifts and so on. What do you say to people who make that claim?
So there is a pretty wide and broad academic literature in economics from mainstream economics departments that since about the mid 1990s has shifted our view on the impact of an increase in minimum wage. So it used to be the economic orthodoxy that when you increase minimum wage you decrease low wage employment. Using these kind of more sophisticated models and more recent experience what this research shows us is that you don’t see those kinds of increases in employment and any decreases in employment are generally concentrated among teenagers.
And what you also see, and what we’ve seen from the kind of recent experience in the U.S. and in the analysis is that you actually see an increase in incomes for low wage people. So I think it’s really important to note that if you’re being paid more and you’re working a few less hours and your income increases that’s actually a good outcome. Our objective in increasing the minimum wage isn’t to have low wage workers work more and more and more hours, it’s to actually increase their incomes. And so that’s one piece of literature.
In terms of the impact on the increases in prices, first of all those increase in prices are spread across the whole economy. So high income people might pay a little bit more, low income people pay a little bit more, but the benefits are concentrated for low income workers. I also think you don’t have to go to complex economic literature to look at this, you can look at the experience in B.C. I think it was at least a decade ago when they increased the minimum wage by a similar amount and there wasn’t a huge loss, employment continued to grow.
You can look at the experience in Alberta which I think this week moved to a $15 minimum wage where you’ve seen not only increases in employment but also increases in employment in those low wage sectors. And you can also look at the current experience in Ontario and absolutely the sky hasn’t been falling and overall there has been either stability in employment in those low wage sectors or slight increase.
The Cable: So one of the other prongs of the Ford government’s approach to workers has been or is likely to be the focus around Bill 148, The Fair Workplaces And Better Jobs Act, which brought in a host of labor reforms as you know. And now we have the Ontario Chamber of Commerce and various other business lobby groups calling on Ford to repeal that bill, either elements of it or the bill in its entirety. I wonder if you can walk us through what that legislation does at a high level, and explain why these business lobby groups are so desperate to cancel it.
So I think what Bill 148 did was it did some modernizing of the rules around employment and the rules around labour relations, so labour relations refers to unionized workers’ employment standards are the rules for all workers. The labour market has changed enormously. What’s often called the standard employment relationship is less prevalent. So often 30 years ago people would finish their education, they would work for one employer, they would potentially work for that employer for their entire working life. And then the relationship without an employer might actually continue not only after they retire but after they died because they would have a pension plan and the pension would provide survivor benefits.
Little different now.
Yeah, a tiny bit different. I always like to kind of scare millennials when I tell them those stories about the relationship after death. So as we all know that model doesn’t happen anymore. There is a change in the way businesses have organized themselves.
There’s huge technological changes and there also changes in the structure of the Ontario economy. Goods-producing like manufacturing is a smaller share of employment and service industries, some of which are very highly paid and some of which are very low paid are a larger share of the labour market.
So as a result of a two year review process Bill 148 looked at what had changed in the labour market in particular for precarious workers and what kind of changes were made, and absolutely all the changes that advocates looked for were not made but some really important aspects of it aside from the increase in the minimum wage were around equalizing pay rates between temporary part-time workers and full time workers. So that would be a situation where you have the same workplace, two workers working side by side doing the same work, but one could be paid less than the other because one was in from a temp agency and the other was a permanent employee. So that is a really big change to decrease inequality and to decrease the incentive for employers to keep people in more precarious employment. That’s a very big piece that I think we would lose if that bill was repealed. And it really should remain.
There weren’t wholesale changes to the Labor Relations Act but there were small changes around making it easier for precarious workers both to join a union if they chose to do so, but also to keep their union. And so one of them was an extension of successor rights. So what that means is if you work for a contract cleaning company that cleans offices in some big office building and you manage to unionize, then the next time that the contract is let for those cleaners you can’t be undercut by a non-union cleaning company because those terms and conditions that you negotiated would apply to anyone who took over that contract. That’s a simplification but that’s the general idea there.
So that kind of an issue and also some changes around access to workers, to identify them and find out whether they’d like to join a union or not. That is very different again, if you had a steel plant with 10,000 workers who all worked similar shifts and lived in the same neighborhoods, that’s a lot different in terms of trying to identify people to ask them whether they want to join the union than if you’re at a Tim Hortons and you have a bunch of people who work there who work very different shifts and live in very different parts of the city and might have, you know, four different jobs that they’re working at. So those small changes have actually been important to organizing drives and have been helpful.
So those are two of big changes in Bill 148 that I think again the loss will increase income inequality in Ontario, which will further disadvantage marginalized workers because we know the people who are working in these kinds of jobs are more likely to be racialized, more likely to be immigrants, and more likely to be women. And so it will increase inequality in a number of ways, not only not only along income lines but along lines of racialization and along gender and along immigration status.
The Cable: So Bill 148 is obviously a good thing for workers, for low income people, but sort of counterintuitively I guess, we’re seeing more and more of these right wing governments like Ford, like the CAQ in Quebec, Kenney (probably) in Alberta, come into power. And part of what seems to be driving their ascendance is the concerns of people, many of whom are in that that class, around affordability or an inability to get ahead in the economy. There’s lots of frustration there. And Conservatives claim to be addressing this through the sort of things that Ford talks about a lot. Tax cuts, lower gas prices, and so on. I’m wondering what you think the progressive alternative here should look like. What sort of solutions would you like to see progressive leaders talking about more?
SB: I would like to hear progressive leaders talk about how how public services are an essential part of affordability and that if you have to privately buy your health care or if you have to fundraise for your kid’s school to get very essential supplies then that makes life more expensive too, and that you absolutely get good value for the taxes that you pay and it’s a really efficient way to buy things together. I think I’d also like progressives to talk about how we need an adult conversation about taxes. The story that my colleague Hugh Mackenzie talks about is even a 5 year old going into a candy store knows that if you only have a nickel, you can only buy a nickel’s worth of candy. If we want these public services, if we want health care, if we want to end hallway medicine, a way to do that is to raise enough money to pay for it.