The 2007-2008 financial crash was, in terms of its global impact, the greatest in history, wrote Leo Panitch, Canada Research Chair in Comparative Political Economy, and Sam Gindin, Packer Visitor in Social Justice, both of York’s Faculty of Liberal Arts & Professional Studies, in an opinion piece for the Toronto Star July 20. It was only prevented from immediately triggering another Great Depression by governments in so many countries taking on the enormous private debt of their banks.
Two years later, with the banks having dumped so much debt on the public sector and their profits on the rise, bond traders were feeling confident enough again to dispense the bankers’ old orthodoxies on the evils of public debt.
Despite the relative insulation of Bay Street from the financial collapse, the provincial economy took a major hit. With its deficit projected at $21.3 billion, the Liberal government’s March budget focused almost entirely on debt reduction. Apart from putting on hold essential public transit expansion and reducing food assistance for the disabled (while keeping corporate tax cuts in place), it also imposed a two-year wage freeze on 350,000 non-unionized government workers.
This week, even though data on first-quarter economic growth has shown the deficit projections were too high, the other shoe dropped. Finance Minister Dwight Duncan summoned public sector union representatives to Queen’s Park to discuss a broader public sector freeze.
If implemented, the immediate effect of this can only be to cut the feet from under the economic growth that has occurred. Rather than cooperate in this, it is very much to be hoped that the unions will undertake a broad campaign to expose how unreasonable and irrational, let alone unimaginative and unjust, is public sector austerity in this crisis, wrote the professors.
Its effect on government revenues is the real immediate problem, and since we are dealing with a crisis of once-in-a-lifetime dimensions, the remedy should be an emergency once-in-a-lifetime emergency tax on those who accumulated the most wealth over the past quarter century from asset inflation while workers’ incomes stagnated in both the public and private sectors.
The Ontario government should also be expected to take advantage of the lowest interest rates on public debt in memory and use its borrowing capacity to keep economic growth going in the face of the banks’ hesitancy to lend to businesses and consumers, alongside industry’s own reluctance to invest.
This crisis has proved – by the state’s guarantee of deposits in Canada, and by its acting as lender of last resort almost everywhere – that finance effectively is a public utility. The argument that financing an economy is too important to be left to private banks is waiting to be heard.
What must be brought onto the agenda in face of the pressures that unelected bankers, with astonishing chutzpah, are putting on governments is the need for banking to be turned into a democratic public utility. The money the people of Ontario entrust to their banking system could then be used to meet our society’s real needs.
- Professor Gregory Chin, a senior fellow at the Centre for International Governance Innovation and a political scientist in York’s Faculty of Liberal Arts & Professional Studies, took part in a panel discussion about China’s growing economic power in the world, on TVO’s “The Agenda” July 19.