Canada’s Economic Structure is Failing, But We Must Continue To Soften The Blow
Written by: Morgana Adby
On Mar. 19, Alberta’s oil prices hit a record low. Since this month began, the stock market has invoked a circuit breaker three times. Meanwhile, Canada’s top doctor tells us “We don’t just need to flatten the curve, we need to plank it,” and outbreak modeling communicated by a doctor and medical officer with the armed forces estimates eight months of social isolation.
Nobody is sugarcoating it. Even as Prime Minister Trudeau spoke about the $82 billion released to support workers and businesses -on top of the loans for businesses made available earlier this month- he acknowledged that things are going to be tough; “Nothing is off the table.”
The concept of the ‘economy’ is difficult to visualize, so here I’ve mapped out what all this means for different people.
The Context
Three-quarters of Canadian jobs are in the service sector, about 98 per cent of which are employed by small businesses. This is important because this is the industry projected to be hit the hardest by mass layoffs.
However, it is important to remember that far from all those jobs will be at risk, because it includes non-essential services, like grocery, healthcare, waste management and education.
Still, a significant number of workers in the service industry are in hospitality, which will likely be hit the hardest as people continue to social isolate.
Many non-essential retailers and food services are able to keep some revenue by offering exclusively online services, or take-out and delivery. For retail, even though the layoffs will be minimized providing the business can succeed online, any job in upkeeping the closed stores will be eliminated.
Likewise, with food service there is a similar problem with downsizing, but also concerning is that as the situation evolves, restaurants may need to limit or yield this service as well.
Under the status-quo, the economy is reliant on consumer’s ability to spend their money as part of the process that creates wealth. Recessions in the past have been challenging to get out of, because it is difficult to stimulate this growth when people are unable to spend money.
What Changed Since Then For Oil, The Stock Market and Jobs
Personal contentions of sustainability and ethics of the oil industry aside, the situation with OPEC (Organization of the Petroleum Exporting Countries) and Russia is a jarring example of the changeability of markets.
Combined with the plummeting and pausing on Wall Street investments, or rather flooding of market sales. The wild market sales were in part caused by inconsistent information coming out of the US Oval Office in past weeks.
The first hit was a decline in travel in response to the global pandemic. Then, Saudi Arabia flooded the oil market, in response to the ongoing price war between Russia and OPEC. So demand is down, supply is up, and all this on top of investors pulling out of carbon-heavy projects in Canada. Further developments have limited travel worldwide even more significantly.
But it is not just oil. As service industries are hit, those workers with less hours, or who are laid off completely face serious challenges. Additionally, many people with the power to continue spending on those services will not, because it is necessary to social isolate.
This could become serious: quickly. Some people affected can benefit from the emergency financial plan for Covid-19, which supports both workers and businesses financially.
Provinces also have plans in place, for example Ontario halting eviction notices, and British Columbia’s utility corporations have waived late payment fees.
That said, there are many limitations and gaps that will need to be filled as we prepare for the long term ramifications in the coming weeks. Some of these gaps have been so far ignored, such as the community support vacuum. Food banks, halfway houses, youth group homes and safe injection sites are being closed down.
In light of the federal plan, business leaders remain optimistic that the economy will recover from the challenges of the next quarter. Still, even with recovery being promised, the tangible conditions of many people are at risk.
The Federal Response
If you are out of work, you can apply for Employment Insurance online right now, with the waiting period waived.
For those ineligible for EI, there is an Emergency Care Benefit that will be administered through the Canada Revenue Agency in April. It will provide “up to $900 bi-weekly, for up to 15 weeks,” for workers who are sick themselves, taking care of a family member who is ill or watching their children, because of school and daycare closures.
For the long term, $5 million will be allocated to extend the benefit. Canadians can also expect an EI work sharing program, where EI benefits will be supplemented to those agreeing to work less hours.
This tax season, more tax credits are available to modest households with particular care to provide relief to families with children.
For businesses, public loans and other services have been made available through the Canada Account managed by Export Development Canada, and $50 million is available for loan from the Business Credit Availability Program. A 10 per cent employee wage subsidy is also available through taxing for eligible businesses, but has a nominal cap as well.
Further measures have been taken to allow for financial liquidity, and flexible deadlines on expenses such as mortgages.
Credit where it is due, significant resources are being released in a somewhat timely manner to the spike in Canadian cases. Although there has been major criticism levied that much of the aid has to go through the CRA, and will not be available until April, the reasoning is sound. Simply, it would take longer to locate the persons eligible for benefits and send the cheques than it would for the agency that has the infrastructure to get funds to workers. Maybe you think that the new logistics should have been implemented during the epidemic period. However, it is important to remember that when March began, most Canadians' daily lives were not impacted.
That acknowledged, skimming the components of the plan, you may have noticed a few major limitations.
Firstly, all aid applies to workers and owners of capital, which leaves no direct for people with mental illness, addiction or who otherwise relied primarily on community support. More on that later.
Secondly, that these measures are generally those that are intended to be temporary. We can not delay expenses forever, so the flexibility measures have a built in assumption that what is owed will be paid in full with time. EI is systematically structured to be a temporary measure, as is the worker benefit despite the $5 million released to extend it. If the country is facing eight months of social distancing, where there are just not enough jobs, then at some point workers may be out of luck. Granted, as the situation evolves more funding may be allocated, but eventually there will be a limit without some way for the federal government to increase revenue.
Loans for small businesses are still loans, which is a daunting task for business owners that are having to minimize or halt business altogether. Even those non essential services that remain at full production, are likely to be affected by the lack of consumer spending power. The loans are only a band aid, and if the economic bleeding does not stop, then small business owners will be in trouble: loans + no profits is not an equation that keeps businesses open.
Thirdly, in relation to spending power, these benefits are less than workers may be used to living on, which is especially critical in places where the cost of living is high.
Even where rent flexibility is provided, people will likely handle those non-optional expenses first. So, their spending power will still be limited compared to their usual lifestyle.
It is difficult to guess how consequential this will be, and is likely a downside of any benefit program including Universal Basic Income and Negative Income Tax models. However, “55% of your average insurable weekly earnings,” through EI or $1800 a month through the emergency benefit would likely act as a barrier to spending beyond the effects of social isolation.
Again, that is so relevant here because the way to overcome a recession in a foundationally free market economy is stimulation, that people just will not partake in.
At Risk People, Indigenous Nations and the Community Support Vacuum
For some Indigenous communities, the ongoing systematic problems are going to heighten the impacts of Covid-19. Lack of clean water, poor housing or inadequate healthcare in communities is a national disgrace during the best of times, but in light of the pandemic is beyond horrifying.
The structures we allow resulted in Indigenous communities being hit harder by the H1N1 outbreak in 2009. Still, these conditions continue. Many Indigenous Nations are disallowing outsiders entry to their territory in hopes to minimize the exposure to community members.
Justin Trudeau announced that $305 million will be released to Indigenous communities, in order to support them in these hard times. Still, the details of that have not been released, and the systematic issues combined with uncertainty of the situation make it impossible to know if this measure will make a dent. Also important, is that people are already getting sick, so any further delay on the release plan for this support could be devastating.
Another group that may face heightened difficulties in this time are socially at-risk people. Homeless people, low socioeconomic status people with addiction, mentally ill, food insecure and others may face hardship depending on their situation. The issue is that community support programs that supplement government services are shutting down to prevent further spread of Covid-19.
Although I am uncertain of the scope of this problem, multiple medical/ community support workers have pointed this out in British Columbia. Likewise, community members in Ottawa have reported similar things. Because many of these programs are private or semi-public, they act individually and make decisions about closure independently.
Food Banks Canada is trying to support food banks across the country to continue services, but when volunteers need to be social distancing for everyone’s safety, getting food to people is a difficult task.
Again, I must explicitly say that there is no statistics on this, and even services or centers that I know to have closed activity do not necessarily have those notices online yet. The ambiguity is even more of a reason to pay attention, in the coming days an understanding of the problem must be cemented in order to know what solutions are necessary.
Many who use these services have not been a worker for some period of time. Regardless if it is a person who is recently out of prison, has a mental illness, or if they are a at risk young person who has never worked, they deserve the right to access these basic things. As a population, our continued support of these local programs is a testament to that; we know it is better for the individual, but also fosters a better community for all.
Before this vacuum increases to a more inhumane level, there needs to be some way to ensure that people ineligible for the current benefits receive these services. Even though many cities and programs are working together to innovatively continue the most basic services, such as delivering food bank goods, there ought to be some form of nationwide financial support for all those needing it, not just workers.
The consequences of not addressing the problem will go beyond the individual. Desperate people are more likely to commit crime, ignore rules (like self-isolating), and otherwise engage in behavior that would be a problem.
If this is an all hands-on deck situation, we need the most at risk people doing their part as well. If we do not ensure they are supported in doing so, then we are risking further complications in what is already difficult times.
What Comes Next?
We need to accept that this is not going away, temporary emergency measures are good. However, serious consideration needs to go towards how we can continue supplementing the income of thousands, support Indigenous Nations and replace the decline in community services. Without all three of those measures, it will not matter that businesses are supported with loans anyway, because consumers will not have the ability to stimulate the economy.
We do have a wealth inequality problem in Canada. We have just over 40 billionaires in Canada. David Tompson, a net worth of $39 billion. Joseph Tsai, net worth $10.2 billion. Galen Weston, net worth $9 billion. The list goes on.
Granted, much of that wealth is likely not fluid; they are not hiding away a vault of loose change for a cartoon duck to swim in. The point is more that the wealth is there, and currently controlled by private individuals.
In a time where our biggest industry is going to lull and see layoffs, Canadians spending power will decrease significantly and the measures put in place by the government may not be able to accommodate the months of social isolating ahead: we will not be able to create wealth in the way we are used to.
Therefore, some form of a wealth tax is absolutely necessary, in order to distribute the resources we have more equally. Exactly what percentage could or should be distributed in the coming months is difficult to say. But surely the people in this country that are the backbone of this country are entitled to some of the wealth they helped create in these tough times.
My opinions about methodology aside, it does not really matter if it is Universal Basic Income, Negative Income tax or some other method. What is most important is that we start the process of wealth distribution in some way.
Without it, all classes of society will see the consequences of neglecting to stimulate the markets during the isolation period.
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