March 1998

Interests of big and small business not the same

The problem for small and medium-sized businesses is that, unlike the Trans National Corporations (TNC's), they operate in the real economy which still depends on healthy communities and confident people. The Trans National corporate agenda cannot deliver greater prosperity to most people, and thus cannot deliver prosperity to most small and medium-sized businesses. By Seth Klein

For the past two decades, the corporate agenda (sometimes also called the neo-conservative or neo-liberal agenda) has been pursued with phenomenal success, not only in Canada but internationally.

It consists of:

This agenda has made remarkable progress in the past 20 years, although more so with governments than with public opinion, which still supports social programs, especially public health and education, and still believes in the positive role of government in fostering job creation.

But the effect of this policy agenda has been, for most Canadians, very damaging. We now operate within a climate economist Jim Stanford describes as the permanent recession where the jobless rate cannot seem to return to pre-1980 levels, no matter where we are on the business cycle).

Workers have been, as a result, effectively disciplined. The gap between rich and poor keeps widening and the middle class shrinking. According to Stats Can, between 1973 an 1993 the richest 30% of Canadian families saw their share of the nation's income increase by 5.4%, while the poorest 50% saw their share drop by 9%. This represents a $14 billion transfer from low- and middle-income Canadians to high-income Canadians.

Real wages are flat or falling (depending on what measure one uses), and insecurity is the norm. Income support benefits and minimum wages have not kept pace with inflation, and in the former case have been much harder to qualify for.

But neo-conservative advocates are still not satisfied. They seek further reduction in the role of government, more privatization and more deregulation.

Canada today is a much richer country than it was in the early 1970's, but its wealth is being distributed more inequitably. Per capita GDP in Canada, while declining in the 1990's, is still more than 50% higher today than it was in 1972, when social programs were at their peak, yet we are today, for some reason, told we cannot afford them.

Thus far, the organizations representing small and medium sized businesses in Canada, such as the Canadian Federation of Independent Business, have cast their lot in with the big business lobby. They have believed, for whatever ideological reasons, that their interests are linked to the corporate agenda.

The irony, however, is that many of these smaller businesses are dying by the sword.

We see this in record increases in bankruptcies. Free trade and competition from transnational superstores have put many small and medium sized firms out of business. The policy of fighting inflation through high interest rates plunged many small businesses deep into personal debt. But, more importantly, monetary and fiscal restraints have stifled growth and diminished public confidence and consumer spending. The problem for small and medium sized businesses is that they operate in the real economy _ an economy that depends on healthy communities and confident people. But the real economy is pass in the age of globalization. Transnational corporations _ whose markets are global and whose profits come increasingly from investments in the paper economy - no longer require healthy communities and workers with decent wages in Canada.

Small and medium sized businesses cannot benefit from a shrinking public sector. Government layoffs mean depressed consumer confidence, lower real wages, and a massive reduction in disposable income for many thousands of public sector workers.

Nor will middle income entrepreneurs benefit from large scale tax cuts, for such tax cuts must necessarily be accompanied by large scale cut in government services. What middle income earners save in taxes, therefore, they will pay (and then some) in increased tuition for their children, more user fees, higher private insurance premiums, and larger private pension contributions.

The only possible benefit of the neo conservative agenda for small business is that labor is now less secure and more docile. Employers now benefit from a climate in which labor's wage and other demands are minimal, and workers are no longer able to reject unpleasant work conditions in favor of UI or welfare.

But this brings with it problems as well. It means that long-term consumer confidence and spending are in the doldrums. It cannot offset the other social ills and tensions that are left to contend with as a fallout of neo conservative "reforms", and which we as a society are paying for in rising crime and penal bills, and are paying for personally in rising security costs and other services and products that we formally provided for one another through the public sector.

Major corporate profits have risen sharply since the recession low of 1992, and have set records for each of the last three years; the lion's share of these profits are concentrated in the hands of the 150 biggest corporations, members of the Business Council on National issues (BCNI), The Globe and Mail reports that "corporate Canada has never had it so good. Profits at 200 of the country's biggest companies hit a record $6.9 billion in the first quarter of 1997, up 44% from the same period a year earlier."

Many of the same corporations that are reaping such record profits are continuing to lay off thousands of their workers. But what effect are these layoffs having on the people and the communities that small business depends on?

Profits from small and medium sized businesses have been quite modest, and many are experiencing declining returns. On the very same day that the Globe reported record corporate profits, another Globe article, buried deeper in the paper, referred to a new Stats Can study which found that the gap between rich and poor is widening in Canada. Between 1989 and 1995, the income of the poorest one fifth of families dropped by 20%

Even the powerful global Investor George Sarlos, writing in the February issue of the Atlantic magazine, came to the conclusion that neo-conservative economic reforms have gone too far, and that this widening gap cannot be sustained. Sarlos wrote: "Although I have made a fortune in the financial markets, I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market va1ues into all areas of life is endangering our open and democratic Society."

These sentiments were echoed in September 1997 in a Speech given to a Toronto business audience by the president of Noranda.

The neo-conservative corporate agenda cannot deliver greater prosperity for most people, in Canada or Internationally, and in the long run it cannot, for that reason, deliver improved Prosperity or security to most small and medium-sized businesses.

Perhaps we should look to Countries such as Norway for guidance. In 1994 Norwegians voted against joining the European Union. International pundits predicted dire consequences. But on the contrary, Norway continued to finance a strong and vibrant public sector, as well as a very generous social safety net, yet inflation is only 1.5%, unemployment is down near 4% (the lowest in Europe), poverty is virtually non-existent, and annual economic growth ranges between 3 and 5%.

Norway remains a trading nation, but has proven that a Country need not, even in the age of g1oba1izatiion, give up the protection of domestic industries and their employees. Norway offers evidence that it is not true that there is no alternative to trade liberalization, the primacy of financial markets, tax cut for corporations, cuts to health care, welfare, and other public services, and the privatization of the public sector. It is an example of a more fair and compassionate society _ a place where, according to a recent New York Times report, "Even business people join in their nation's adherence to social democracy. Norwegians frown on wide disparities in income."

Sure, some wealthy Norwegians Complain about their taxes. "We would like to change some things," Karl Glad of the Confederation of Norwegian Business and industry is reported as saying in the article. "But I don't believe many business people here think it is worth taking the social risks associated with radical change."

Canada would be well served by a return to this kind of social solidarity: to a belief that we are responsible for one another, and that what is good for our neighbor _ in wages, social benefits and security _ is also good for us.

I think that the pendulum has swung much too far towards free market economic restructuring, and that Canadians, including small and medium sized businesses, have paid a high enough price. It's now time to reaffirm what it means to be a society, and develop economic institutions and programs that serve people and communities, not just transnational corporations.

(By Seth Klein the CCPA 's B.C. coordinator.)