Winners & Losers 2011: Big winner, big loser

Unions get demolished and the 1% wipe away the stains of insult with crisp new $100 bills.

 

BIG WINNER: The 1%

In September, hundreds of people gathered in New York City’s Zuccotti Park in protest—against what wasn’t precisely clear. But the so-called Occupy Wall Street movement spawned identical protests around the world. The one unifying theme among them was dismay over the growing gap between the rich and the poor. “We are the 99%” became the demonstrators’ slogan, the remaining 1% being the privileged sliver of the population that controls an inordinate amount of the world’s wealth. And while the protesters were busy occupying parks, sleeping in tents and slipping into the local McDonald’s to use the bathroom, the 1% were occupied with more urgent matters.

Petrochemicals tycoon Huang Yimin, for one, spent more than US$5 million to purchase a 50-year lease on a Chinese island and populate it with boar, pheasant and deer. He’ll charge visitors roughly $35 for the chance to stalk, shoot and kill the animals roaming his island. Across the Pacific, Oracle CEO Larry Ellison took his neighbours to court over the “irreparable harm” he would suffer if they didn’t remove a few trees on their property that blocked his view of San Francisco Bay. In August, New York financier Leon Black celebrated his 60th birthday by paying Elton John $1 million to perform for his 200 guests.

The 99% had a much tougher year. In the United States, the unemployment rate is stuck at 9%. If you include Americans who have given up on looking for work, the figure is closer to 16%. Nearly 45 million Americans are on food stamps. While Canadians are better off, the unemployment rate is 7.3%—higher than its pre-recession level. And after falling for more than a decade, the percentage of households classified as “low income” by Statistics Canada has ticked up since the start of the recession, to 9.6%.

In this cash-strapped, post-recession world, where the majority is merely muddling along, the rich have significantly improved their fortunes. It’s not quite accurate to say that while the rich get richer, the poor get poorer; it’s the super-wealthy who are getting richer a lot faster than everyone else. The Global Wealth Report released by Credit Suisse in October shows that the 29.7 million people whose net worth exceeds $1 million (less than 1% of world population) increased their wealth by 29% over the past 18 months—roughly twice as much as all other income brackets. The American rich saw the biggest gain, adding $4.6 trillion, which is the continuation of a long-term trend. In the early 1960s, the top 1% of earners controlled roughly 30% of the country’s wealth, according to a Federal Reserve Board paper. By 2009, that share ticked up to 33.3%. The bottom 50%, meanwhile, dropped from owning 4% of wealth to 1.5%.

The story isn’t much different in Canada. The Canadian Centre for Policy Alternatives found the richest 1%—the 246,000 people earning $405,000 annually on average—controlled 13.8% of the nation’s wealth in 2007, up from 7.7% in 1977. Median income growth has practically stalled; between 1976 and 2009, it rose only 5.5%, to $48,300.

But the 1% aren’t winners just because they have more money. The wealth enables them to influence politicians, laws and public opinion, and entitles them to favourable treatment. Take taxation. In 2001 and 2003, former president George W. Bush instituted two major tax cuts. In 2007, the Congressional Budget Office found that while the cuts reduced taxes for every income level, the 1% benefited most. Republicans have recently proposed “broadening the tax base” by going after the many Americans who pay no taxes at all. There are indeed Americans who pay no tax, such as 93% of the families earning less than $16,812 a year. Roughly 1,400 millionaires also paid no taxes in 2009, according to the Internal Revenue Service. The Republicans have preferred to focus on the lower-income brackets, arguing that taxing the wealthy—the “job creators”—may cause them to flee the U.S.

But how concerned should we be about the gap between the 1% and the 99%? Some members of the 1% have posited that income inequality might actually be a good thing. Investor Dennis Gartman wrote in a letter to clients in November that “We celebrate income disparity…for it is evidence of what has made America a great country.” His logic is that disparity provides an incentive for people to work hard to avoid falling in with the destitute masses.

This view is shortsighted, however. High levels of income disparity are bad for everyone, hurting purchasing power and economic growth. It also leads to civil unrest. Equitable income distribution, on the other hand, correlates strongly to longer periods of economic growth, according to the International Monetary Fund. Though income inequality in Canada is not as bad as in the U.S., recent history is worrying. According to the Conference Board of Canada, inequality was declining until about 1994, when changes to Employment Insurance and welfare programs contributed to reversing the trend.

No matter what’s done to address the gap, there will always be a 1%. The danger lies in leaving those at the bottom with little means to advance. As Warren Buffett said on Charlie Rose recently, “There has been class warfare going on. It’s just that my class is winning…I mean, we’re killing them.”—Joe Castaldo

BIG LOSER: Unions

Ever since Pharaoh Ramses III looked on in dismay as Egyptian artisans stopped work on his necropolis to protest inadequate rations, striking has been the most potent weapon in organized labour’s arsenal. This year, several unions unsheathed it, only to discover the blade wrapped in red tape.

When governments intervene in labour disputes, the justification is usually public health or safety. “What’s different this time was the speed with which government acted,” says labour relations consultant David Shepherdson. In 2011, several strikes were over before they’d begun.

It’s the latest blow to organized labour, whose influence has been waning for years. Although older workers fondly recall labour’s triumphs (racial equality, better working conditions, narrowing the gender pay gap), younger people remember those victories dimly, if at all. Unions continue to dominate the public sector, but they’re steadily losing their grip on the private sphere, where they now represent fewer than 16% of Canadian employees (partly due to the decline of industries where unions were entrenched, such as forestry).

And now the threat of strike is losing its sting. Toronto Transit Corp. employees had yet to think up a clever placard slogan when they learned their wrists would be shackled to their steering wheels. Months before several collective agreements were to expire, Mayor Rob Ford asked the province to designate public transit an essential service. Premier Dalton McGuinty complied, effectively neutering the Amalgamated Transit Union.

Next up were Air Canada’s 3,800 customer service and sales agents. They walked out in June, seeking increases in wages and pensions. Passengers found only modest delays, but even that was too inconvenient for federal Labour Minister Lisa Raitt. One day into the strike, she called it a threat to Canada’s economic recovery and warned that if it didn’t cease immediately, she’d legislate agents back to work.

Undeterred by their colleagues’ defeat, in September 6,800 flight attendants rejected a deal reached by Air Canada and their union, and threatened to strike. Raitt again hurried legislation forcing the two parties into arbitration, and the arbitrator sided with the company.

The 48,000 postal workers who engaged in rotating strikes this summer didn’t fare much better. When Canada Post locked them out, the resulting mountains of undelivered mail prompted Raitt to declare the strike harmful to consumers and business. She forced the posties back to their posts; not only that, she legislated wage increases lower than Canada Post’s most recent offer. “They stacked the deck and made arbitration very unpalatable to the union,” says Robert Hebdon, a professor at McGill University’s Desautels Faculty of Management. “I would argue it was punitive.”

The reasons for these interventions are passionately debated. Shepherdson notes there’s no evidence strikes cause recessions. Others contend the government is using its new parliamentary majority to wage an ideological crusade. “We’ve never had this kind of blatant government oversight and interference in bargaining—not in my lifetime,” complains Buzz Hargrove, the grizzled veteran who headed the Canadian Auto Workers. Others still see the moves as spillovers from the U.S., where some states (notably Wisconsin and Ohio) have declared war on public-sector unions, seeking to reduce benefits and collective bargaining rights as a means of repairing state budgets.

Politicians today reap instant political dividends for sticking it to the unions. Nobody wants to arrive at an airport to find a grounded plane. Putting the squeeze on posties has seldom been regarded as great mischief, either. With unemployment rising, striking workers perceived to have cushy jobs and plentiful benefits (especially at taxpayer cost) can expect little public sympathy. Amid spreading fiscal austerity, they also risk being tarred as intransigent spoilsports.

But some companies would prefer that government butt out, fearing that arbitrators will grant more concessions to workers stripped of their right to strike. Those fears are well-founded. Last year, Hebdon co-wrote a study that found forcing arbitration on public employees increased wages by 1.2% more per settlement than through bargaining. Employers also lose if interference sabotages future negotiations. “The parties have an expectation of intervention,” he says, “and they hold back.”

It bears noting that Ottawa isn’t intervening on labour’s behalf, even during the large Ontario strikes at Vale Inco in Sudbury and U.S. Steel in Hamilton that each lasted nearly a year. “The only time the government interferes is where it’s clear the union has power to extract some concessions from employers, like Air Canada,” Hargrove says.

Organized labour’s best hope of sharpening the strike’s dulled edge lies with the courts. In October, postal workers launched a legal challenge to Raitt’s back-to-work legislation. Some speculate that this dispute could wind up before the Supreme Court, forcing the nation’s senior judges to ponder whether the right to strike is protected by the charter of Rights and Freedoms. Stakes would be high for all involved. “If it’s found to be a Charter right, that will bolster union bargaining power,” says Shepherdson. But Hargrove, citing recent Supreme Court appointments, is nervous. “Harper has the Parliament, he has the Senate, and he now has the majority in the courts.” And as Raitt has demonstrated, the feds do not hesitate to use the weapons at their disposal.—Matthew McClearn

Comments are closed.