A Failed Global Experiment: The Truth About the US Economic Model by John McMurtry
(Economic Reform, Vol. 12, No. 7 July 2000)

The US and world economy it leads are, in fact, sliding into a black hole. The giant sucking sound you hear is the rush of Canada and other imitators racing to follow.

What is concealed is that the US economy is jettisoning its human, social and environmental capital for the short-term competitive gains of investors and consumers. Cheaper goods and costs come by the loss of tens of millions of secure domestic jobs. Real lower taxes for upper income brackets are achieved by stripping social assistance programs for the poor and unemployed. Equity values are increased by non-productive mergers, laundered drug billions, internet stocks with no earnings, and leveraged debt and asset-flip money. Low unemployment figures are achieved by massive increases in part-time and starvation-wage jobs and a staggering 2,000,000 citizens in prison off the unemployment rolls (over 12 times the number of US citizens caged as in 1968, and about six times the West European rate). The new regime rules the globe behind bars of money and iron.

On one level, the "restructuring" of the US economy is the revenge of the rich against those who advocate a more democratic and egalitarian social order. "The booming US economy" is, in essence, their after-tax profits masked by global figures and averaged aggregates. Government has been, in effect, bought as their servant -- privatising the public sector into subsidised for-profit services, enforcing corporate world rule by rafts of new trade and investment laws, and spending hundreds of billions of public revenues on police, prisons and weapons to terrorise te increasingly dispossessed across borders.

It is not just a social hollowing-out which we see here. The US economy is in decline on monetary indicators too. Its current account deficit with the world -- the measure of how much product and credit it imports compared to what it exports -- has skyrocketed. It is now on the road to doubling since 1998, and is poised to pass 5% of GDP -- the international bankers' marker of an economy in deep trouble. The surface prosperity rests on three shaky props -- windfalls of off-shore and portfolio money diverted from the Asian meltdown and the European doldrums, feverish leveraging of credit to stratospheric highs of citizen indebtedness (what Federal Reserve Chairman Greenspan celebrates as peoples' "new freedom" in his Senate confirmation hearings), and a no-standard regime of transnational trade that opens all gates to the competitive costs of near-slave foreign labour.

Underneath its saturation of the globe with "free market" slogans and its artificially ballooned domestic demand inputs, the underlying economy is running more and more on empty. What is not understood by conventional economists anywhere is that growth of real money demand on wealth is not growth of wealth. It has become the eating away of wealth -- the real wealth of human, social and natural capital upon which the economy depends. Corresponding to the new floods of money demand loose in the US economy is ever more degeneration of the atmosphere and air, the water tables, the forests and the fishstocks, an obesity rate that has grown by 50% in less than a decade as the poverty of the bottom 60% of the population grows, and deteriorating conditions of civil life at every level. The US and world economy it leads are, in fact, sliding into a black hole. The giant sucking sound you hear is the rush of Canada and other imitators racing to follow.

Beyond the US Mirror: While the US corporate propaganda machine manages to keep the country's accumulating decline of life conditions out of all economic discussion, another fact goes unobserved. Other nations have done much better in even monetised prosperity by investing in their social infrastructures and in public goods.

Ireland has recently led the world in economic growth. But despite all the flatulent talk of lower corporate taxes, the growth has been undergirded by the most developed credit union sector in the world, by massive spending on public infrastructure financed by European Union public revenues, and by major and increasing investment in higher education. Credit is not monopolised by big banks selecting for paper profits without productive gain. Interest returns to credit unions are ploughed back into small-business (such as family bed-and-breakfast establishments which are the backbone of the country's rural and village economy). At the same time, all qualified citizens can access higher education -- the most important public good for citizens in a knowledge economy. University and college fees have been abolished. Debt slavery is not, as in the US and now Canada, the price of being educated.

Then there is Norway. Wages have not been kept down by the blunt instrument of central bank interest hikes which disemploy workers and ruin small businesses. Wages have been established by partnership with labour in a national Stability Alternative. The nation's oil royalties are not given away to foreign oil corporations as they are here, but are invested back in the social infrastructure. Recent budget surpluses are not spent on tax cuts favouring the upper tax brackets, but are retained as public revenues. On the basis of policies which look to the long-term common interest rather than short-term money gains of stock markets and consumers -- the "sound fundamentals" of reality -- Norway's economy has grown at double the European average, controlled inflation, achieved near full employment, reduced inequality, and advanced democratic control over the economy.

Holland is another case. Like Norway, Holland has built its success on the basis of worker agreement with national economic policies. (Recall here that the US Labor Advisory Council, required by law to participate in foreign trade agreements, was handed the 2200-article NAFTA the day before its passage.) Since the late 1980s, Holland has quartered the official unemployment from 12% to 3.2% by means of the Wassenaar Agreement, a social agreement in which labour unions accepted wage restraint in exchange for shorter work time and state commitment to job creation. A higher rate of job creation was in this way managed than in the US -- without draconian welfare cutbacks or labour forced to work for starvation wages.

But where do you read or hear of these successes? The corporate media can only talk about "lower taxes," "less government," "more flexible labour markets" and "free capital flows." But the program of financial deregulation and privatisation once hymned as the source of economic miracles has precipitated declines in real life conditions everywhere. New Zealanders recently woke up, and returned a government to retax the rich and to re-invest in the country. Other nations have been less fortunate. The 1984 social experiment on New Zealand was imposed on other societies with still greater aggression. Among the consequences of the mindless program were the destruction of Russia's economy, the meltdown of South-East Asia, and the bankruptcies of Mexico and Brazil.

Why does no one yet talk about "the US's failed global experiment"? One reason is the control of the world's mass media by those who have multiplied their personal and corporate fortunes by the experiment. Another is the billion-dollar-a-day NATO war-machine which is used for strategic genocide of any developing nation pursuing an economic alternative -- from the Soviet Union and Nicaragua to Iraq or Yugoslavia.

Canada's Quisling Class: But the US global experiment carries on in Canada as if no history had intervened. Funded by the banks and transnational corporations, and aped by financed politicians, media flaks, and director-in-waiting bureaucrats, the Reagan tax-cut revolution of the 1980s is retreaded as a Bold New Idea. The program grows more life-blind as the impoverishing of the social sector is force-fed to the public who in survey after survey prefer other social priorities. What has been kept very quiet during the corporate media campaign to lower taxes is the fact that 70% of Canada's taxed citizens have less than $30,000 in annual income, and receive virtually nothing from existing or demanded tax-cuts. Yet CRAP pitbull and KKK-friend, Tom Long, calls for a hacksaw 17% tax-rate on the richest citizens, as the governing Liberals give over 20 times more to tax-cuts favouring the wealthy than to health and education.

But the US model they mimic is in an accelerating downslide in the life economy that counts -- from the junk food its 33%-obese population lives on to its higher illness and birth fatality rates than poor neighbouring Cuba, from its world-leading social insecurity indices and private health-disaster system to its third-world inner cities, bought elections in which the majority no longer vote, and the tragically growing void of meaningful work for future generations. Behind the money aggregates flashed on the cave walls, the reality is that an economy that feeds on the life capital of its people is structured to ruin.

John McMurtry is professor of philosophy at the University of Guelph, Ontario.

Selected Sources: . John McMurtry, The Cancer Stage of Capitalism. London G.B. and Sterling US: Pluto Press, 1999. . Tom Schlesinger and Jane D'Arista, 'The repeal of the Glass-Steagall Act,' US Fed Alert, December 21, 1999 (ER, April 2000, pp. 4, 14) and Timothy A. Canova, 'Can Mr. Greenspan Tame the Big Bull?,' Economic Reform, April 2000, pp. 10-11. . Anders Hayden, 'Dutch Model or Dutch Disease' and Jim Stafford, 'Tax-Cutter's Guide to the Class Structure of Canada,' Newsletter of the Progressive Economics Forum, November 1999, pp.3, 13. . Christian Debrie, 'Thick as Thieves' and Noelle Burgi and Philip S. Golub, 'The States We Are Still In,' Le Monde Diplomatique, April 2000, pp. 6-9. . 'Footsoldiers in war on deficit get little budget benefit, Most budget goodies go to those who need them least,' CCPA Monitor, May 2000, pp. 8-9. . 'Hog Nation,' Earth Island Journal, Spring 2000, p.23.

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Copyright © 2000 John McMurtry (COMER Publications, used by permission).

"Economic Reform" is the monthly journal of the Committee on Monetary and Economic Reform (COMER), a Canada-based publishing think-tank. Annual subscription, 12 issues, is CD$30 in Canada, US$30 United States, and US$35 Overseas.

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Millenium Forum speech by Martin Khor of the Third World Network

* In a brilliant speech Martin Khor details the damage globlization has done to the Third World and labels it a form of apartheid.

Speech by Martin Khor, Director of the Third World Network, at the Opening Session of the Millenium Forum, UN General Assembly Hall, New York, 2000.

We are meeting at the beginning of the new century, facing the serious crises handed over from the last century. A few years ago someone predicted the "end of history", the end of conflicts of ideas or physical conflicts as all countries and people embrace the single goal of free markets and liberal democracy.

But the end of the Cold War did not usher in universal prosperity or brotherhood. The scandal of poverty remains more entrenched, and there are rising inequalities between countries, social classes, men and women, indigenous people and those who want to colonise their resources. Instead of peace and security, there are conflicts and insecurities, some of them resulting from global pressures and from inequities and poverty. There is the environmental crisis, raising questions about survival of Earth and humanity. There are the threats of technology gone wrong, such as nuclear power, toxic chemicals and genetic engineering. In the area of health, scientists are predicting the end of the antibiotics era as disease-bearing bacteria and viruses overcome overused antibiotics and pose the threat of new epidemics.

Our age is also defined by the process of globalisation. There are different approaches to this phenomenon. Some say it is inevitable and basically good, you just have to adjust to it and learn to reap the benefits. Others worry about the costs and advocate some safety nets to catch the losers as they fall. In truth, the essence of globalisation is the push by big companies and financial institutions to have more power, to grow bigger through taking over others, and make more profits. They have lobbied their governments, of the rich countries, to break down the national barriers that prevent them from totally free access to markets across the world, especially in the developing countries.

These countries' economies had suffered during colonialism, so in the first phase of independence, governments of many of these countries instituted measures to boost their weak domestic economy, domestic firms, banks and farms. They had affirmative action policies in favour of the local economy and firms, and defended them from predatory big foreign firms. These big firms now want to break down the barriers so that they can take over the local firms and farms of the developing world and increase their monopoly. Thus we now see the liberalisation of trade, finance and investment. But in areas where the big companies and their governments would lose from liberalisation, they practise protectionism, for example the imposition of high intellectual property standards throughout the world which is protectionist, in creating monopoly of technology by the big compaies and hindering technology transfer.

Globalisation as practised today is a kind of apartheid, a term mentioned by Juan Somavia, director-general of the ILO in his speech just now. It is misleading and it skirts the issue to talk only in terms of "sharing better the benefits of globalisation" and helping the "marginalised." This presumes that globalisation only produces benefits, but some gain more than others. In reality, globalisation creates benefits for some, losses for others, and worse, the same process that generates benefits also generates losses. So, part of the benefits of the gainers is at the expense of the losses of the losers.

Globalisation is a process that can be called re-colonisation, a term created by Mr Raghavan of the SUNS Bulletin, when he wrote a book on Gatt, the Uruguay Round and the South. A new form of colonialism is operating. When the people fought against slavery, or apartheid, or colonialism, they did not speak in terms of sharing better the benefits of slavery or apartheid or colonialism. They fought the systems of slavery, apartheid and colonialism themselves. So too we cannot just talk of sharing better the benefits of globalisation. We have to fight the system of the globalisation we have today.

The crux of the problem is the unequal distribution of power and wealth in the world. We must recognise this and not skirt the issue. Those that hold power and wealth want to keep it and protect it. Thus we see the double standards that exist between what is preached towards others and what is protected for themselves to maintain the monopoly of power and wealth. There has been the successful campaign to ban land mines, a victory of the people's movements. But the nuclear powers still refuse to ban nuclear weapons. There is much talk and conditionality to get transparency and democracy going at the national level, and we NGOs have been part of this campaign in our countries. But the major countries refuse to democratise at the international level, where the global decisions are taken mainly by the G8 or the OECD or the Bretton Woods institutions and WTO, without the adequate participation of smaller nations, let alone the civil society. There has been the great pressures of the rich countries to get the poorer countries to liberalise their economies, but the North practises protectionism when they insist on patenting their technologies, when they practise bio-piracy, when they do not open their doors to labour coming from the South.

One of our central issues at the Forum is how to revitalise the influence of the UN. In truth, as we all know, the UN has been disempowered not because it is inefficient or useless but because it is too transparent and too democratic, and its decisions are taken with the participation of all countries. The Security Council is the exception. The developing countries have too much influence in the UN since decisions are on the basis of one country, one vote. So the major powers decided in the early 1990s to reform and reshape the UN, and transferred its authority on economic and social issues over to the IMF, World Bank and WTO, institutions which they control. The IMF and World Bank's decisions are on the basis of one dollar one vote. The WTO has a system of decision-making that at crucial moments has excluded most developing countries, including through the notorious "green room negotiating process."

Thus, we need a democratisation of global institutions, and to inject people's rights into them. For that to happen, the big powers have to agree to loosen their grip on internatiional institutions and relations. They will do this only when the people's movements and civil society let it be known that this is their wish.

We need democratisation and transparency in the private sector, in the financial institutions and markets, the transnational companies, we need to voice our ncojncern about their concentration of wealth through takeovers and mergers, their ability to destroy the wealth of small countries through financial speculation.

We need transformation of the financial system and institutions. The protests in Washington, in Chiengmai, have shown that people are now aware of the tremendous damage done by the policies imposed by these financial institutions like the IMF and World Bank. Their governance system must change and their role and policies must change, or else the change in the financial system must include their marginalisation to a proper, narrow and small role.

We need change in the multilateral trading system. The WTO's operating principle of liberalisation at all cost is misleading and has caused dislocation. Many of its agreements are flawed and should be changed. For example the agriculture agreement that leads to import liberalisation in developing countries threatens millions of rural livelihoods and threatens food security. Food products of developing countries for locazl consumption should be excluded from the agreement's obligations on import liberalisation and domestic subsidy. The TRIPS agreement on intellectual property will raise prices of medicines, prevent technology transfer and facilitate biopiracy. Many NGOs have concluded it has no place in a trade organisation which furthermore is supposed to promote liberalisation, not protectionism over technology. And there should be a moratorium on introducing new issues like investment, competition, governmeht procurement, which would further enormously empower the yet unreformed WTO and have disastrous consequences.

We need the UN to have more power. Yes the UN should also reform, especially in the decision-making structure and system of the Security Council. It should be more efficient and effective to serve "we the peoples." But we all recognise it can do so only if the United States pays up its dues to the UN, and not make its payment contingent on reforms that emasculate the UN further, for that is the tactic of blackmail. Rich countries should not hold back their payment to the UN. The UN can also be empowered only when the major powers agree to return to it its legitimate role in policy making and programmes in economic and social matters. Yes the World Bank, IMF and WTO may have important roles to play, but these roles must be the appropriate ones promoting the right policies, and their current oversized roles have to shrink to appropriate sizes and functions. There must be a return transfer of power and authority from these institutions (and from rich-country exclusive mechanisms like the G8 and the OECD) to the UN.

And so, We the Peoples face a divided world of inequality and conflict. We must go beyond the nice words of diplomats and bureaucrats, for it may be their job to use nice and cautious language. We of the civil society are not expected to use such cautious and polite language. We must strive to identify and remove the sources of poverty and conflict and the inequality of wealth.

In doing so, we must first hoonour and pay homage to the heroes and champions of the people who have come before through the years and centuries of social struggles. Those who fought to overthrow the big oppressive forces of slavery, feudalism and colonialism. Who fought to give rights to ordinary and poor people, the small farmers and peasants, the workers in factories, the jobless and homeless. Those who fight for people's rights to a good environment, the local communities who fought against toxic waste dumps, the indigenous people and their supporters who fight against destruction of their forests and rivers, the farmers who resist the poisoning of their lands. Those who fight for safe and democratic use of technologies, against nuclear and chemical pollution, against genetic engineering and biological pollution. Those who are struggling, with their lives on their line, for lqand reform and land rights, for workers' rights to decent pay and work conditions, for the destitute in slums and squatter areas and plantations. Even those in national and international bureaucracies, including the diplomats and those in the the UN, who try their best to hold the fort and turn the tide on the diplomatic front.

We pledge to absorb the spirit and lessons of these champions and courageous fighters of the centuries and to take on the struggles of the modern age, the 21st century, and to use innovative and effective methods, to serve the people, and in doing so we serve the world and ourselves. We the peolple can survive and bring forth a better world that is socially just and ecologically sustainable and as a result a world of peace and security. We invite the UN and the governments to join us, just as the Secretary General of the UN this morning invited us to join the UN in its activities. But with the UN or without it, we the people will have to do it, to carry out our mission of bringing about a better world.
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Poverty and the Decline in Public Health – June/99
   The most powerful predictor of human disease is economic inequality. Scientists have known for decades that poverty translates into higher rates of illness and mortality. Now an explosion of research is demonstrating that social class as measured by income, education and other markers of relative status is one of the most powerful predictors of health.
   What matters is not simply whether a person is rich or poor, college educated or not. Rather, risk for a wide variety of illnesses varies with RELATIVE wealth or poverty: the higher the rung on the socioeconomic ladder, the lower the risk.
   It isn't the absolute level of well-being that matters so much as the relative level. Even among the well-to-do, those higher on the social scale are healthier.
   Social cohesion -- a sense of community -- also plays a role: people live longer in places where they believe they can trust their neighbors.
   If relative standing in the community is what matters most in protecting public health, then the modern world has been headed in the wrong direction for at least 20 years. Inequality has been increasing for 20 years. The growing gap between rich and poor is the result of public policies and private corporate practices intended to benefit those who own assets at the expense of those who earn wages
** The minimum wage has become a poverty wage that buys far less than in the past.
** Social Assistance, welfare and disability benefits are falling to ever lower levels.
** The median income of young families with children has dropped by one third.
** The average worker now works many more hours to make ends meet.
** Union jobs have been destroyed. Fewer than 14% of workers are union members now, down from 35% in 1955.
** For 20 years companies have been withholding wages from workers and transferring that wealth to executives. The average CEO now makes 326 times as much as a factory worker
** Pensions are slowly disappearing, and the quality of pension programs is rapidly declining. Only 47% of workers are now covered by pension.
** A college education is the key to decent wages, but since 1989 tuition and fees have increased more than three times as fast as inflation.
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America Online Time Warner Marriage - Possible Effects on Canada
by Gary Morton - Jan.12.00

   AOL, the huge Internet service provider and new owner of Netscape has married Time Warner, the media conglomerate that owns magazines, cable companies, broadcasting networks, film studios, music companies and book publishers.

   Just after the deal took place, one well known Canadian columnist said that "henceforth, the real Internet will be the corporate Internet."

   I would say that as far as media coverage goes, the corporate Internet has been getting most of it for some time. Even long time web news organs like Wired seem like little more than corporate trumpets these days.

   AOL has 23 million subscribers in the USA. And AOL is also the net company experienced net users in Canada most hate. Use of AOL or the other biggy, the Microsoft Network, can hit your credit card with whopping charges. The smaller ISPs give better usage deals by far. AOL has also long been despised as a source of spam. Its users are the world's worst spammers, always trying to sell people stuff. On the positive side for me - my own web site, FrightLibrary.com has probably had more visitors from AOL than any other place.

   The new giant's plans for profit and growth are obvious. The net has enormous advertising and sales potential. Cable and other high speed means of access will deliver advertising and products to a large market. That market becomes increasingly a product of the cultural products it consumes, and it will demand more of the same. In the second stage the loop begins as the AOL giant not only sells you what you need today but teaches you what you will need tomorrow. So in the big picture the corporate giant will control culture and the profits from it.

   It is really pretty much like that in the States and much of Canada already. This new deal is old entertainment really, but now it is digital and reaches deeper into our homes and minds.

   Keep in mind that it is still possible to escape. AOL isn't the only place on the web and its biggest enemy may be the passing years. Web newbies shell out the cash and buy into this old media as new media. But as they become web savvy they tend to walk out on AOL.

   This deal does mean a lot in Canada as the American giants will want to feed on the growing world wide web market outside of the USA. In Canada and elsewhere, regulations prohibit the existence of giant corporations that provide cable and content. So how does AOL or say Microsoft get in the door? How do they buy say the entire cultural industry of Canada and then shape it to AOL Canada?

   The answer is that they do what they've already been doing. Canadian author Paul Hellyer has just released a paper on free trade that reveals that much of what has been called free trade in recent years has really been the removal of regulations blocking excessive foreign ownership.

   Microsoft is now the controlling force of the World Trade Organization and it will be through deals with that organization or other international bodies that the fix goes in so American Giants can buy the entire cultural and Internet industries of Canada and other nations.

   Sweeping changes to the broadcasting and publishing industry in Canada will creep in secretly as the public will not be informed -  the giveaways will be disguised as measures to improve global trade.

   In Canada a recent report noted that we have more millionaires than ever and about all they do is play golf. A brainless set that does little to promote and develop Canadian culture. In one way it is fitting that Gerald Levin, Steve Case and Bill Gates are waiting with open arms -- and they will certainly take our nation and its profits, if we fail to rise to the challenge ourselves.
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 The Co-failure of Communism and Capitalism in Russia - June.2000
Committee on Monetary and Economic Reform - ER2000-06-#02

It is not the custom of this humble journal to carry reviews of book reviews. However, Marshall L. Goldmann's review of Chrystia Freeland's Sale of the Century: Russia's Wild Ride from Communism to Capitalism promises to initiate a new art form, so delightful is its satire in the guise of a laudatory review. The author is now deputy editor of The Globe and Mail.

That might be a hazard in commissioning a review over one of the most impressive sovietologist by-lines on the double swindle connected with the transition from the soviet regime to the present kleptocracy. In a few brief years the evangelists of total and instantaneous deregulation have run up a responsibility for the human catastrophe in the former Soviet lands second only to that of the Communist czars.

Goldmann opens with a clue to what is really on his mind. "Imagine how
Canadians would react if the country's mineral wealth and factories were suddenly seized by a small band of opportunists and one-time government officials who ended up on the Forbes list of the world's richest. The uproar that would follow, especially if those raw materials and factories had been state-owned, would at least destabilise the government, if not lead to its overthrow.

"That is the story told by Chrystia Freeland, except that the scene of the crime is modern Russia, [and] there is virtually no uproar.

"Like other Moscow correspondents, Freeland -- a former Moscow bureau chief of The London Financial Times -- has an advantage over more academic analysts. She writes well. Moreover, because she was there beginning in January, 1995, just before the most audacious thievery, and was able to interview most of the major players, she is able to provide the reader with insights and information that even Russian analysts have not had. The usual format for journalists is a series of vignettes, usually printed previously as separate news or feature articles. Freeland instead tells the story of the initial hope and subsequent disappointment of a group of dedicated liberal reformers who set out to ensure that communism would never return to Russia. In the process, however some of these one-time reformers not only ended up compromising their values, they created a new monster almost as bad as the old -- a new clique of rich oligarches who proceeded to pillage the country.

"Unlike the robber barons of North America, these Russian manipulators actually created very little of anything; their practice was to seize existing state property and loot it. True, some opened new commercial banks, but the refineries, steel mills, smelters, pipelines, mineral deposits and factories they took over were all there before. Now, as part of the 'shock-therapy' reform process, it was sold off at a pittance, at first to the enterprise directors, and then to the new bankers, who used their banks to finance such purchasers."

This, of course, is the process of "money creation" that operates -- not always in the light of day -- in the West as well. It is worthy of note that the very term 'shock therapy' was devised in the West.

"Freeland shows how the bank oligarches thought up the concept of Loans for Shares, by which four or five of them made off with some of the country's most valuable oil fields, mineral fields and factories. Ostensibly Loans for Shares was designed as an auction for the state's remaining shares in various companies. But in almost every instance, instead of competitive auctions there turned out to be one bidder, usually the auctioneer himself, who seldom had to bid more than a dollar for every $10 of assets.

"While criticising Loans for Shares, Freeland implies that the scheme was part of the effort to save Russia from Communism."

This in fact was part of the Washington party line that made the historic mega-heist possible.

"Since the concept was initially put forward by Vladimir Potanin, one of the
oligarches, a more likely explanation is that it was just a blatant demonstration of greed. After all several of the richest oligarches did not participate in the Loans for Shares effort. She virtually ignores Rem Vyakhirev, who had already become chairman of Gasprom, with the world's richest gas resources. Previously, he was the senior official in the Soviet Ministry of the Gas Industry. Similarly Vagit Alekperov, at one time Acting Minister of the Petroleum Industry, created Lukoil, Russia's richest petroleum company, out of a major portion of what had been that ministry."

There is nothing like continuity for keeping an even keel in the world's affairs.

Then comes a humdinger, that I suppose the G&M had to swallow as price for some of the excerpts that will be useful in promoting their deputy editor's book.

"Freeland also misinterprets the consequences of ruble devaluation. She writes that some of the reformers were unconcerned about borrowing dollars because rapid devaluation of the ruble would 'diminish the dollar value of their debt. On the contrary, it would have increased it."

"Such criticisms aside, Freeland provides us with fascinating insights. She shows why Russian oligarches actually want the law to be ambiguous: it keeps out foreign investors who worry that unless the law is specific, the courts usually rule against foreigners. She shows how, even though the
oligarches merge and split every few months, it always seems to be the state that ends up paying the bill." That, too, is not without its precedents in  Western banking.

"Most tragic of all, she shows how despite their initially high aspirations, the reformers eventually rationalised themselves into accepting corruption as the price for instituting democracy."

Then comes the summing up.

"It is Freeland's flair for capturing the overarching phrase that helps us understand why the reform effort was due to fail. From the president of Gasprom, 'What was good for Gasprom was good for Russia." That, of course, was plain plagiarism from a former head of General Motors who had become
a Washington cabinet minister.

"From a Texas investor asked what he invested in: 'Honey, I don't have to pronounce 'em. I just have to buy 'em.'

"From Chrystia Freeland: 'Russian privatisation was essentially a process of redefinition rather than redistribution.'

"No wonder the reforms are still very much a work in progress."

No wonder indeed.

William Krehm
Publisher-Editor
Economic Reform
mailto:wkrehm@sympatico.ca

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"Economic Reform" is the monthly journal of the Committee on Monetary
and Economic Reform (COMER), a Canada-based publishing think-tank. Annual subscription, 12 issues, is CD$30 in Canada, US$30 United States, and US$35 Overseas.
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The Virtues of Virtuality
(Economic Reform, V. 12, No. 2 February 2000)

The Virtues of Virtuality It is to linguistics that we must go to understand the weightless Internet stocks. Like many other "dot com" companies, Amazon.com, which has still to earn a bean, already has a market capitalisation twice that of General Motors. The world economy has been sundered into two sections — the producers of palpable goods and profits on the one hand that are being left behind in the present market boom, and what have come to be known as "virtual" companies. These market staked-out parcels of hopes and futures. Many of them actually give away their services gratis to run up "market share." The semantic band-aid that helps hold it all together is the word "virtual," and that is where our browsing must begin.

Lewis and Shortt's Latin dictionary give the root of "virtual" — vir man, which in turn is related to vis strength, power. Both are combined in the Sanskrit root vira hero, and turn up in a host of Latin words virus slime, or animal sperm, poison; viscera inner organs, virtus manliness, virtue. It may also have found its way into virgo virgin via vireo to be green or vigorous. It is thus anticipates the ambiguity of the Jungian animus and anima, straddling sexes, as well as the good-evil moral poles. It is situated at the astral crossroads where man the dreamer meets and beds down with man the crook to spawn a progeny of deceit and wonder.

In our last issue, we dealt with the "virtual" portents among Internet stocks. These provide software for Linux and have become skyhooks for an aging stock boom. But the phenomenon is taking on even more powerful forms on other continents where superbooms predating the Internet tended to be based on "virtual" phenomena.

>From Brazil the Wall Street Journal (27/12/1999) brings us the tale in a generational perspective. Three or four decades ago the reigning "virtualities" underpinning economic booms were powerful long-term inflation. That shrank the long term debt — especially loans that well plugged-in mega-entrepreneurs were able to obtain both from their own government and directly or indirectly from the US banks and market. Much of this was made available thanks to the "virtual" democracy with which the corrupt military dictatorship in Brazil imposed with the help of the US.

>From Sao Paolo Peter Fritsch reports: "A decade ago, Olacyr de Moraes had no fewer than 72 banks lining up to lend him money. Today the 69-year-old gadabout once known as Brazil's 'King of Soy' is lucky to find anyone willing to sink money into his shrinking agriculture, railroad and construction empire.

"Not so his 33-year-old son Marcos, founder of Zip.net, a precocious Internet start-up. Though only 16 months old, with annual revenue of $3.3 million and pretax losses of $20 million, his Web site boasts nearly 2.6 million users, signed up for free, Web-based e-mail. And recently, Marcos sold a 10% stake for $10 million, giving Zip.net an indicated value of $100 million. On that foundation, Marcos is building an online travel agency, entertainment mall and links to online shops.

"On a recent trip to New York, Marcos says, he and his bankers at Salomon Brothers Smith Barney Inc. found plenty of investors to contribute to the additional $50 million that he wants to keep the Zip.net growing.

"While the oligarchs who used cozy government ties to create Brazil's capital-intensive, commodity-based industries have gone begging under a cloud of emerging market malaise, their tech-savvy sons are practically swimming in dough. Because Brazil's nearly six million Internet users outnumber those in all the rest of Latin America, venture capitalists have earmarked an estimated $1 billion in seed capital for Web entrepreneurs here.

"'International markets will now support Latin Internet companies that are two years old, while they may not support companies that are 200 years old,' says Gary Nusbaum of Warburg Pincus, which has invested in Latin Web portal Starmedia Networks Inc. — and along with Henry Kravis — in Sao Paulo online merchant Submarino.com.

"The Internet may be even more important to cash-strapped development markets such as Brazil. Since this country's clumsy currency devaluation a year ago, Brazilian companies other than banks have been unable to borrow on international markets. And high interest rates make local loans prohibitive.

"Investors willing to take on pure risk in Brazil are few and far between outside the World Wide Web. Consider that a bond offered recently by Sao Paolo's leading cellular firm sold only after its top supplier, Motorola Inc., guaranteed investors against the myriad political risks associated with Brazil.

"In this environment, people such as Marcos de Moraes can offer investors what his famous father can't. This is what bankers call an 'exit strategy': the ability to go public within a year and make a killing. 'With the Web, the difference is that with relatively little money, you can build very large valuations, which you cannot do in traditional Brazilian businesses,' says Pedro Moreiro Salles, chairman of banking group Unibanco S.A."

It is interesting that one should have to go to Brazil for so frank a statement of an important aspect of the US stock boom — the "exit strategy" — which is bankers' lingo for relying on a bigger fool than yourself to pay you a profit. And considering that Internet stocks are one of the remaining skyhooks that keep Wall St. in ascension, that is a chilling assessment directly from the horse's molars.

"'Brazilian markets are so thin that investors can't hope to reap big gains by going public locally. But thanks to commonly accepted Web yardsticks such as 'page views,' for the first time you have a business in an emergency market valued like a business in the US,' says Mr. Salles."

The consequences for Brazil's real economy are not bright. Like our own but more so, it is reduced to financing trickled down from the Internet game. As the late French economist François Perroux emphasised, money has a way of seeking out an investment very much like the one by which it was begotten. What was obtained in a brilliant gamble is unlikely to end up in a mattress or in government bonds. And the winnings in an Internet start-up play in the US will feel at home in Brazilian ventures that float above such mundane considerations as earnings.

"All this seems like so much smoke and mirrors to the elder Mr. Moraes, a grade-school drop out who made good. With a background in grand infrastructure projects, the irony to him is that money is pouring into the information highway before the country's real highways have been finished.

"Around the outbreak of World War II eight-year old Olacyr's father lost his job with Singer sewing machines. With his severance pay, he bought three 1920s Ford trucks and began hauling dirt for builders in Sao Paulo. At age 12 Olacyr went to work for his father.

"In 1957 Olacyr took over the business transforming it into a construction firm, Constran SA. For years the work was hard but plentiful as Sao Paulo grew into the continent's largest city. Government contracts poured in, and Olacyr earned a reputation as a man on whom his growing number of friends in politics could rely. By the time the military took over in a 1964 coup, he was a success.

"Feeling secure for the first time, he married and a son, Marcos, was born. Then he decided to risk it all. The military, eager to populate Brazil's vast interior, began offering generous incentives for farmers to tame a wild scrubland called the Mato Grosso. Land was cheap; there were no roads, no electricity, no nothing. Olacyr found the challenge irresistible."

That was the "virtuality" of that day. The military government and their US backers had overlooked that once the scrub forest would be cut down and the land worked, the tropical rains would wash away much of the topsoil. But for many years that and the US-sponsored promotion kept the money flowing in.

"Olacyr tamed his 600,000 acres of the Mato Grosso. Cattle, sugar and cotton took over. And soybeans thrived. 'We developed over 10,000 different varieties before we got it right,' he recalls. By the late 1980s he was the world's largest individual soy farmer. Power plants, sugar refineries, limestone quarries and a bank, as well as Constran were among the scores of businesses then flourishing under Grupo Itamarati. The group's sole shareholder, Olacyr de Moraes, then worth $2 billion, warranted a mention in the Forbes list of the world's richest people.

"Itamarati's agricultural holdings, however, struggled under the higher cost of transportation to market. So in 1988, Mr. Moraes resolved to build a 700-mile 'grain train' to the Atlantic coast. It would cost $2.5 billion. Constran began undertaking massive public-works to help build his train. And banks began lending money at the stiff interest rates for which Brazil is famous.

By the mid-1990s, a free-market wave suddenly put the politicians Mr. Moraes could always count on under pressure to curb their deficits. The state of Sao Paulo stopped paying Constran for work on its subway system and balked at building a crucial bridge over the Parana River that would connect Olacyr's train to the state's railway system. By mid-1996 interest on Imarati's loans was ticking away at 40%, and Constran had defaulted on a $55 million bond just months after it was offered to international investors. Mr. Moraes [lost] his bank, quarries, electric plants and 83% of his beloved train known as Ferronorte.

"His own financial troubles and weak commodity prices mean that the elder Mr. Moraes has been able to keep planting soy thanks only to credit from grain merchant Cargill Inc. Ferronorte, kept alive by a government loan and two of Brazil's largest public pension funds, is still two years and $400 million away from completion.

"The paternal lesson of watching 50 years of hard work nearly disintegrate: 'I tell Marcos it's far too risky to rely on government for business.'

"Marcos de Moraes was being groomed to just that when, in 1991, he went to Japan to study Japanese for six months. He returned bitten by the high-tech bug."

"Marcos persuaded his father to create a technology firm called Itatel S.A. with a $1 million investment. Its mission was to find openings for telecommunications. But as Itamarati's troubles mounted, little came from the venture."

"By 1996, it was clear to Marcos that the Internet was the future. At the height of his father's difficulties, Marcos formed a venture with US Internet service provider Netcom to host Web pages for Brazilian customers and provide dedicated links for big companies in Brazil such as General Motors Corp. When Netcom was sold a year later to ICG Communications Inc., Itatel was left with Netcom's corporate Internet business in Brazil. [But] just as Netcom was leaving Brazil in late 1997, Four11 Corp., a free e-mail provider in the US with 750,000 accounts, sold out to Yahoo! Inc. for $95 million. That inspired Marcos, and in a matter of months he had Zip.net up and running. With no one else offering free e-mail in Brazil, Zip.mail exploded. Soon bankers started knocking."

"'What Marcos did well was invest very little to develop an extremely valuable database of users,' says Jorge Arce, Deutsche Bank's managing director for Latin America media.

"Several dozen merchants, including an online travel agency, now peddle their wares in partnership with Zip.net."

"In a virtual world where money is available for smart entrepreneurs no matter who their father is, Olacyr is of little help. 'Marcos is competing in world where he'd fail if he tried to succeed the old-fashioned way,' says Ana Carolina Aidar of Chase Capital Partners in Sao Paulo — an investor in Ferronorte now concentrating on the Internet."

However, too great a reliance on virtual goals and evaluation leaves its ineradicable scars. That prolific flow of capital from the Internet is hardly suitable for financing the real productive economy by Perroux's comportment law — just as a large feline accustomed to the taste of blood is not a fit candidate for taming as a domestic pet. And the Internet itself has to do with marketing rather than production.

The high domestic interest rates and the budgetary tightness imposed by the IMF guarantees the neglect of infrastructures essential for the productive economy and society itself. The cumulative effects of such distortions are bound to pull the economy out of shape. er

William Krehm Publisher-Editor Economic Reform mailto:wkrehm@sympatico.ca

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Copyright © 2000 COMER Publications. All rights reserved. Permission to reproduce is granted if accompanied by: "Copyright © 2000 COMER Publications. Reproduced by permission of COMER Publications, www.comer.org."

"Economic Reform" is the monthly journal of the Committee on Monetary and Economic Reform (COMER), a Canada-based publishing think-tank. Annual subscription, 12 issues, is $30.

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Government Misleads re Free Trade by Paul Hellyer, Jan.6.00

TORONTO, ON -- "As Canada takes on the challenges of the 21st century, it is time to set the record straight on free trade," said the Hon. Paul Hellyer, leader of the Canadian Action Party. "The Canada/U.S. Free Trade Agreement and NAFTA are not, I repeat, not primarily trade agreements. They are investment agreements which have led to the sale of much of Canada over the past decade.

"The fact that Canadians don't realize this is the direct result of a deliberate and well-orchestrated misinformation campaign."

Mr. Hellyer pointed out that both the FTA and NAFTA contain clauses which give U.S. corporations the right of "national treatment" (the same rights as Canadian citizens) in Canada. This has allowed large American businesses to expand into Canada (Wal-Mart, Costco, Home Depot) or purchase Canadian companies (MacMillan Bloedel, Eaton's, Club Monaco) with impunity. The exceptions to this rule lie in the banking, transportation, cultural and social areas -- but protection for these sectors is also being whittled away by the Chrétien government.

"These trade agreements weren't even needed," Mr. Hellyer argued. "Trade barriers between the two countries were already being reduced by the General Agreement on Tariffs and Trade (GATT). And, it is important to note that, as ‘free trade’ agreements, the FTA and NAFTA haven't worked at all well for many important sectors of Canadian industry. Steel, cement, lumber, pork and other exporters have learned that there is no such thing as free trade with the United States.

"Again, these deals and other more global trade deals are really about investment, not the free flow of goods and services," Hellyer added.

The Canadian Action Party head was reacting, in part, to an Angus Reid poll, released January 3rd, which revealed that Canadians are confused about their country's current situation. "The poll results show how the governments of Jean Chrétien and Brian Mulroney have successfully mislead the Canadian electorate. It (the poll) shows that 71% of Canadians think that free trade with the U.S. has been a positive contributor to a growing closeness between the American and Canadian economies -- YET the poll also shows that 61% are angry at our federal government for not doing more to stop U.S. and other foreign-owned corporations from buying Canadian-owned companies.

“The most frustrating aspect of this poll is that it shows that the Canadian population is not aware of the fact that the present trade agreements with the U.S. actually permit and encourage such cross-border incursions," Mr. Hellyer said. "We at CAP have been saying all along that agreements such as the FTA, NAFTA, the narrowly defeated MAI and, now, the WTO, have all sought or are seeking to pave the way for the eventual corporate takeover of Canada.”

In spite of government and corporate attempts to lull Canadians into a false sense of security based on misinformation, there is a growing awareness across the country of just how rapidly Canada is being absorbed by the U.S., he noted. "Our natural resources are threatened, our culture is being blanketed by American values and the heart of our nation's distinctiveness is being menaced.

"If we don’t halt this progressive invasion in the very near future, we will have lost Canada to the United States forever. This would truly be the largest, bloodless political coup in the history of the world as we know it,” warned Mr. Hellyer.

The Canadian Action Party will be doing its utmost in the coming year to educate and organize Canadians so that they are capable of avoiding such a scenario, he stated. "We are readying ourselves for the next federal election which will determine whether Canada survives or falls."
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contact: Paul Hellyer , Leader, Canadian Action Party-- (416) 535-4144
Peter McCrindle, Vice President -- (514) 428-0921
Connie Fogal, President-- ( 604) 872 2128 or (604) 687 0588
Marc Bombois, Vice President,-- (604) 898 5641
Clair Foss, Vice President-- ( 250) 547 9764 Web Site: www.canadianactionparty.ca Email: cap-pac@istar.ca ==========

USA – 167 Billion Yearly in Corporate Welfare
(Excerpt from a Special Report: Corporate Welfare and Foreign Policy
25-AUG-1999 by Janice C. Shields (a joint project: Interhemispheric Resource
Center/Institute for Policy Studies) ircalb@swcp.com)

   The U.S. government doles out more than $167 billion annually in what critics dub "aid for dependent corporations (AFDC)." This corporate welfare includes:

(1) cash payments by governments to businesses;
(2) government provision of below-cost products and services, such as loans and insurance, to businesses;
(3) tax breaks for businesses;
(4) laws—and changes in laws—that help business bottom lines; and
(5) government purchases of goods and services from businesses at inflated prices (though laws are supposed to prevent this).

   U.S. aid for international investors, exporters, and importers exceeds $32 billion annually and benefits such "needy" recipients as General Motors, Citibank, Archer Daniels Midland, and Boeing. The Market Access Program (MAP), for example, uses taxpayer money to reimburse corporate foreign advertising costs. The Overseas Private Investment Corporation (OPIC) supplies loans and insurance to companies investing abroad. Federal tax law allows exporters to exempt a portion of revenues from taxation. The Sugar Program, which limits U.S. sugar imports, increases the sweetener industry's income by keeping supplies lower, leading to higher prices.

   The validity of corporate arguments supporting their welfare programs is often questionable. For example, some executives claim that subsidies and tax breaks are needed to create or maintain U.S. exports and jobs. Proponents of MAP contend that these subsidies generate $16 in export revenue for every $1 in taxpayer costs.  Yet, U.S. General Accounting Office studies could not document any increase in exports due to MAP expenditures. Similarly, the Congressional Research Service could not confirm the job creation claims of OPIC beneficiaries. The tax break that allows U.S. corporations to defer payment of more than $1.3 billion annually in U.S. taxes on foreign earnings until remitted actually encourages U.S. companies to invest overseas.

   Corporate welfare may also harm international relations, especially when companies force countries to compete against each other to attract businesses by offering more subsidies and tax breaks or when countries use subsidies and tax breaks to retaliate against each other's policies.

For example, the U.S. Secretary of Agriculture recently threatened to provide Export Enhancement Program cash bonuses to U.S. flour exporters as a signal to the European Union that he was concerned about European flour subsidies.

   Elements of both the progressive and conservative political camps are campaigning to cut corporate welfare, though they seek different outcomes. Progressives argue that the money should be used instead to provide housing, food, medical care, and education for truly needy families and children. Conservatives want to downsize government by cutting corporate welfare.

   If these subsidies aren't cut, each government agency that disburses corporate welfare and each company recipient should be required to provide detailed annual public reports disclosing the amount of welfare disbursed/ received, how the welfare was used, and how the taxpayer expenditure benefited the company and the public. Corporate welfare programs should be periodically reviewed and, if costs exceed public benefits, eliminated. Government agencies doling out corporate welfare should bar companies with bad labor, environmental, and social records from obtaining benefits; business "AFDC" recipients should be required to follow codes of good corporate conduct and to refund the welfare if they fail to meet their commitments, such as creating promised jobs.

   (Janice Shields is coordinator of the Corporate Welfare Project and TaxWatch, projects of the Institute for Business Research.)

For details on this massive corporate welfare visit the Corporate Welfare Shame Page at The Progress Report:
http://www.progress.org/banneker/cw.html
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Exerpt from THE GROWING GAP REPORT
by Armine Yalnizyan
CENTRE FOR SOCIAL JUSTICE 836 Bloor St. West Toronto, ON M6G 1M2 tel: 416-516-0009 fax: 416-531-3197 email: justice@socialjustice.org
website: http://www.socialjustice.org

SUMMARY
Look around the world, and you will see example after example of nations conducting a risky social experiment of "letting the market rule." However, not all societies have succumbed to these pressures - some resist having market principles determine their quality of life.

This document examines the way "letting the market rule" is destabilizing Canadian society.

IT'S ABOUT VALUE

The starkest inequalities arise between corporate executives, who are granting themselves exorbitant pay increases, and their workers, who face the threat of wage rollbacks and job insecurity.

· The top 10 CEOs in Canada each brought home more than $10 million last year. · On average, the top 100 CEOs saw a 56% increase in compensation last year. · Wages are not keeping up with inflation. Many people have had their pay frozen during the 1990s, even unionized workers. Federal public servants have had one pay increase in the 1990s (3% in 1993) · People who work in unionized environments (such as those packing meat and making socks) are being pressured to take wage roll backs and lose hours of work. In the unorganized environment, workers are less able to resist making such concessions. · Welfare rates, welfare eligibility and/or shelter allowances have been reduced in almost every province since 1995.

Among executives in Canada, Robert Gratton (of Power Financial Corporation) received the highest compensation (salary, bonuses, other compensation, and realized stock options), bringing home $27.4 million in 1997. His stock options, the "long-term incentive" his company provided him so he could do the best possible job, were cashed in at $23.5 million. His salary alone was pegged at $1,758,000. It would take 47 years for the average person to make that much, based on the current average annual earnings of a full-time, full-year worker.

We are super-valuing a few, devaluing the many.

WHAT THE MARKETS GAVE US: INDIVIDUAL OUTCOMES

Polarization of earnings among Canadians is on the rise, especially among men. Men under the age of 35 have seen a remarkable, perhaps unprecedented, erosion in what their work is worth compared to older age groups, and compared to what "under 35ers" were worth in 1980. Male workers under the age of 25 have seen the greatest decline.

While about two-thirds of the employed labour force worked a full-time 35-40 hour a week job a generation ago, now only half the workers have such jobs. About one in five jobs are part-time (double the number from twenty years ago) and, in any given week of the year, about one in five people are working overtime, paid and unpaid. The fastest growing segments of the labour market are "casualized" jobs - temporary, contract, irregular - which account for about 15% of the stock of jobs. Self-employment accounted for half of all the new jobs created so far this decade.

Time and money have both reinforced the trend towards a growing gap among men in what they can earn. That trend is much softer among women, because they are putting more time into the labour market than in the past, because they have increased their rate of higher learning, and because of the implementation of pay equity and employment equity statutes since 1980. Still the generalized phenomenon holds: "prime-age" female workers doing better than their younger counterparts.

There is an emerging fault line between those under and those over the age of 35.

WHAT THE MARKETS GAVE US: FAMILY OUTCOMES

85% of Canadians live in some form of family, half of these are raising the next generation. This section looks at what has been happening to the basic building blocks of society, families with children under the age of 18.

The Rich Are Richer: In 1973, the richest 10% of families with children under 18 made 21 times more than the poorest 10% of Canadian families. In 1996, the richest 10% of families made 314 times more than the poorest 10% of Canadian families.

Shrinking Middle Class: In 1973, 60% of families with children under 18 earned between $24,500 and $65,000 (in 1996 dollars). By 1996, that middle class shrunk: only 44% of families with dependent children made between $24,500 and $65,000.

Most of that change happened in the very middle. Those earning the equivalent of between $37,600 and $56,000 in 1973 accounted for 40% of the population. A generation later, only 27% of the population found themselves in the middle.

Women And Work: Families are increasingly having to rely on more than one income to get by. Two-thirds of mothers with children under three are in the labour force, compared to one third a generation ago. This reflects the overall trend among families: the dual earner family is now the norm in Canadian society. This trend is also happening in other countries too, but here most families are juggling two full-time jobs, while in other countries they are more likely to have a mix of full- and part-time work.

Stable family incomes? The chief way Canadians have stabilized their family incomes has been to increase the hours of paid work provided by the family unit. But we may be approaching a "saturation point", where - among those who are getting the jobs - there simply aren't more hours to be worked. This household strategy for offsetting market forces may have run its course.

Increasingly, even a second income isn't enough. Real (inflation-adjusted) average family market incomes are lower today than they were in 1981. Sixty percent of families with children were earning less than in 1981.

WHAT OUR GOVERNMENTS GAVE US

Given the kind of disparities the market has generated, Canadian society has experienced a remarkable stability in the distribution of income until only two or three years ago. The reason? Government programs of income support and government provisions of public, or common, goods.

In 1989, the average market income of families in the bottom 10% of society was around $4,000. By 1996, the average had fallen to less than $500 a year. That is because the number of families without any earners has grown dramatically over the last generation. In 1973 about two-thirds of the poorest families had at least some earnings. Today three-quarters of the poorest families have no earner. Without government programs, those at the bottom would have experienced a free-fall into destitution.

Between 1981 and 1996 the earned incomes of the poorest 20% of households with dependent children was cut in half, from $12,000 to $6,000. Government help (unemployment insurance, social assistance and other programs) brought the poor family's after tax income up to $16,600. This is lower than it was in 1980 ($17,700 in 1996 dollars).

The role of the transfer system (income supports from government) and tax system has provided remarkable stability in the distribution of incomes over the last generation. This stability is deteriorating dramatically and rapidly: since 1994, the ratio of after-tax income between richest and poorest families has escalated to the highest point since 1973. The fastest change has been in the last year for which we have data, between 1995 and 1996.

Recent government decisions to cut back transfer payments and scale back the provision of public goods have hit the poorest families - and our country's youth - hardest.

Governments have told us we can "grow our way to equity," that the market will produce results that make everyone better off, but it's becoming evident that inequality is growing in Canada despite economic growth. However, this is not happening everywhere in the world. Growing inequality is not a "natural" by-product of the forces of globalization. It is a by-product of choices that are made: what will be produced in an economy, through what means; how will this influence the distribution of resources (including money incomes); how much will these outcomes be mediated?

Governments clearly have a role to play in society, by both setting the rules by which the market plays and by mediating the fall-outs from the market. Though there will always be a gap between rich and poor, we can choose how large we let it get, and how fast we let it grow. We can choose what kind of a world we create.

* * * * *

INTRODUCTION

The report in your hands tells the story of how income disparities among Canadians, as individuals and as families, have grown over the last generation. To do this it relies primarily on the things that can be measured, making it a report about the evolution of material well-being, the economics of households and the economics of society.

This introduction provides a critical framework for understanding the issues that will be discussed, linking them to more fundamental human questions. It offers a perspective that is all too often divorced from discussions of economics.

The report tells the story of what kind of an economy we are making. The introduction helps set the stage: the transformation our society is undergoing is not just about economics, it is about value - who we value, and what we value. This offers the reader a way of assessing the story as it unfolds. What is wrong with the world we are creating?

We are told that there is not enough employment with adequate pay because of the sluggish performance of the economy. We are told that we do not have enough resources to alleviate poverty because the economy is not growing fast enough. The solution that has successfully captured the imagination of our elected leaders around the world for the past twenty-five years has been to place capital accumulation at the top of the agenda in order to speed up economic growth.

According to the logic of the "trickle-down" policies which have been so widely adopted, if you remove restrictions on the already-wealthy so that they can accumulate more wealth and make more investments, the wealth will "trickle-down" to those at the bottom. This is supposed to mean more people will be working, and so everybody will be better off.

Clearly all investments do not create jobs. Some investments cause people to lose jobs, other investments mean jobs get moved from one country to another. Nor can we simply assume just because people are working that they are better off. Jesse Jackson has reminded us that there was full employment under slavery. In the U.S. today, more people are working and more people are in poverty. As someone once put it, the reason trickle-down policies do not work is because of the sponges at the top.

What is the relationship between equity and economic growth? If your society chooses to close the gap between the rich and the poor, will your economy grow more slowly?

The answer is, no. Some nations decide to invest in reducing income disparities and some nations permit those disparities to grow. Economies operating in completely different types of society can grow at the same rate. Clearly, rising inequities cannot be sold as the unfortunate price that must be paid for economic growth. Does growth necessarily lead to more equity? The answer again seems to be: no. Countries with high rates of economic growth can still permit the distribution of incomes to get worse. But the evidence shows this is a temporary hit, a short-term political strategy. Using international data that stretch over generations, it becomes clear that societies that enjoy higher income equality accumulate more capital (both in terms of know-how and money), pass that on to the next generation and therefore have higher and more prolonged rates of economic growth.

So, the most likely causal relationship between equity and efficiency (read growth) seems to be the one least likely to be flagged. Equity appears to be a precondition to sustained economic growth.

But even if this emerges as the new conventional wisdom, what will our elites do about it? That part of the story is about politics, not economics. The nature of class politics in a given nation and the political will of its leaders are what define the steps that will be taken. That part of the story is about the distribution, not the level, of economic growth.

There is an obvious connection between economic prosperity and society's well-being. But growth in the Gross Domestic Product (GDP) is not the only relevant indicator. Other benchmarks, for example indicators of health, also reinforce the message that it is not so much the level of prosperity that is important as how that prosperity is spread among members of society.

Conventional wisdom would have it that the greater a nation's wealth, the better the health of its citizens. Indeed, there are increases in life expectancies, birth weights, and immunity to disease and illness as the material standard of living increases. But there is an upper threshold, reached long ago by all developed nations. After that point, evidence shows that the degree of economic equality is a critical factor in the health of a society.

The distribution of income is the best indicator of the health of everyone, not just the poor, in society. Citizens of countries with lower per capita income than, say, the United States, but better distribution of that income have longer, more healthy lives, no matter in what part of their nation's income spectrum they find themselves. You do not have to be a wealthy nation to improve the lives of your citizens. You have to be fair with the resources you have.

It may seem that it is easier to reduce inequalities if the whole system is growing. But the whole system has been growing, and inequalities are getting worse. Talk about providing day-care or health-care for everyone who needs it, or assuring adequate shelter, nutrition and income for the economically vulnerable, and the response is "maybe, when we have balanced our budget, when GDP has grown by 2%, 3%, 5%, when world trade grows more quickly." More, quicker, faster. The goal-posts of the game keep getting moved further away.

Can we grow our way to equity? The answer seems to be no.

The "required" rate of economic growth is constantly escalating. In today's world we cannot afford or sustain such rates of growth, both for economic and ecological reasons. The depletion of natural resources and the declining integrity of the environment are not trivial concerns. The east-coast cod collapse is a vivid illustration of how both ecosystems and communities suffer when calls for sustainability are repeatedly ignored in favour of (short-term) economic gain.

Given the current fragility of the global system of capitalism, there has never been a more difficult time to raise these issues. Yet the distribution, and redistribution, of the world's economic resources is precisely what we need to address, not just economic growth. Economic instability is gripping the lives of more and more people over time. The heart of the problem is how we allocate incomes, capital and debt, within nations and between nations.

What are the chances that the political arena will seize this issue? Maybe more importantly, how will the issue of growing inequality be framed?

Throughout much of the post-war period the general orientation of the developed world was that the role of government was to guide the development and distribution of economic growth, thereby helping translate profit to investment. On the way to this goal, governments acted as brokers between citizens and corporations to keep the machine humming. Today, a new orthodoxy is emerging, one which says the best that governments can offer business and citizens alike is to get out of the way and let the market rule.

These profoundly different approaches to the role of government have one very important assumption in common. They assume that economic growth is both the objective and the solution for the project of living together, in a nation or in the world. We are bombarded daily with the notion that making more is the goal, that having more is the answer.

In the rush to produce more and consume more it is easy to overlook the basics. What is the meaning of our lives, as individuals and as the human species? Ask these questions and you are most likely to set off a philosophical discussion, not a discussion about economics. So why, then, do we unconsciously accept that our world should be primarily defined as an economic enterprise?

Clearly there are other principles by which we govern our lives. Values such as freedom of choice (to be who I want to be) and equality of opportunity (to get a chance to be who I want to be) fundamentally underlie our way of thinking in this society. But the way we have come to define these values has separated the individual from the collective. Consequently, when we ask ourselves questions like - what are we doing with our lives? what are we here for? - they get posed as personal, not social dilemmas.

Consider this. The Old English root of the word "free" is "freo", a word that brings out the communal basis of liberty very clearly. It means to be dear, to be loved. No man or woman or child is really free in a society that does not care whether he or she lives or dies, is underpaid or underemployed, ill housed or poorly nourished. In such a world the notion of equality of opportunity is a joke.

Our world is rife with insecurity. As competition gets more intense, more people are economically insecure. The ground becomes fertile for racist, sexist and other forms of discrimination. This erodes people's recognition of each other as essentially equal in the eyes of creation. It dehumanizes people. The legacy of growing inequality is the crumbling of social solidarity, the sense that we share something in common.

The more that a society is unequal, the greater is the number of people who are prevented from developing themselves as full human beings. This dwarfs the potential of society as a whole. As long as inequalities are growing, we are getting away from, not closer to, being the best we can be. How do we reverse gears?

We tend to gravitate towards the option of increasing economic growth - even though it does not necessarily guarantee more equity - because in the minds of most people it is synonymous with the ability to consume more things. This, in and of itself, is considered desirable and valued. The term economic growth is also used to conjure up notions of greater freedom and greater equality of opportunity. This report documents how this generation has not seen much evidence of these more lofty goals.

Alternatives to economic growth are less frequently discussed, making them harder to communicate. It is like learning a new skill or a new language. This is because alternative approaches are based on valuing things that are not necessarily money-based. These are values such as basic human rights, human dignity, the stewardship of our natural resources (including our children), the importance of time, rest and restoration. These approaches, which are unlikely to even refer to economic growth, threaten the status quo. And the status quo says: "Don't worry, be happy. Inequality is not yet a real problem in this land of plenty."

Make no mistake, inequality promotes itself. Those at the top - most of whom feel they don't have enough yet - have control over the ideas. Their ideas for change will hasten, not reverse, the downward spiral of more poverty for more people so that a few may gain. Their solutions focus on exporting the problem somewhere else. Get the poor off social assistance rolls, encourage unemployed youth to go back to school, take the jobs to where people ask for less to do the work.

The truly sustainable solutions beg for an economics of sufficiency, not just for some but for all on this planet. Such an approach itself begs for a rhythm of life that finds more balance. More balance between creation and rest, between paid work and unpaid work, between our lives as individuals and our lives with others. Such an approach has to put the premium on redistribution of time and money, admittedly a difficult and painful political choice in a time of slow or no growth.

We are at the end of an era of rising expectations for most Canadians. Our governments have abandoned the post-war social contract and embarked on a risky experiment that leaves our destiny in the hands of the market. However, all too few benefit from this choice.

Canadians were promised that less government and greater reliance on market forces would unleash unparalleled economic expansion where all would benefit - a rising tide raises all boats. Some are riding high, but many more see at best only a gentle swell, at worst nothing but a stranded boat on a muddy beach.

That this growing gap between the rich and poor does not generate widespread concern is a concern in itself. Are we prepared to accept growing child poverty, a generation of young people who believe they have no stake in either the economic or social fabric of our nation, and increasing numbers of workers whose labour is devalued? If we are to remain the "best country in the world" by the criteria of the United Nations, we should not be rolling the dice with our own destiny.

This report documents how the growing gap between rich and poor has emerged in Canada, why so many people have accepted it as inevitable, and what options we have to help close the gap.

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