Three years after the global financial meltdown, Toronto writer Linda McQuaig says few lessons were learned. Co-author with Neil Brooks of The Trouble with Billionaires, McQuaig spoke to Mike Milne about how growing income inequality is changing Canada.
MIKE MILNE: Your most recent book blames the 2008 financial crisis, like the crash of the 1920s, on the income gap between the very rich and the rest of society. Will it happen again?
LINDA MCQUAIG: It’s unbelievable how no lessons seem to have been learned from that terrible crash. The evidence we point to in the book suggests that when the concentration of wealth at the top reaches extreme levels, as it has in North America recently and did in the 1920s, it creates financial instability, leading to a crash. When you get high levels of inequality, the people with money have very little incentive to invest in the productive economy because there is so little income growth in the general population. So they tend to turn to financial speculation as a way of making good returns.
Furthermore, because there is so much wealth concentrated at the top, the wealthy elite has enormous political clout. They use that to press for deregulation of financial markets so they can do their financial speculation more lucratively. That also happened both in the 1920s and the run-up to the 2008 crash. You would think, if nothing else, the relationship between extreme inequality and financial instability would make us concerned. But since the 2008 crash, there’s been almost no analysis of that.
MM: Does the average Canadian know about this?
LM: I think the average Canadian is aware of the problem of extreme inequality in some sense. The polls do show that people think the rich are too rich and should pay more tax. But I don’t think they relate that to the financial crash. What I find striking, if you look at the debate over the economy, is that too much money at the top doesn’t factor into the debate at all.
MM: What can ordinary citizens do to protect themselves from greedy financiers?
LM: There was a deliberate decision in the late 1990s to deregulate financial markets. That decision was taken by the most senior people in American government and finance, who I think understood it but were in the grip of the ideology that free markets will solve all. Sadly, that continues to be the mantra.
The deregulation of financial markets in the 1920s led to a horrible crash and the Great Depression. And coming out of that, the Roosevelt administration tightly regulated financial markets, and the result was better performance of financial markets. When neo-conservatism arrived in the late 1970s and early ’80s, you got deregulation again because it is extremely profitable for the players in the financial markets. But it’s also extremely unstable for the economy.
MM: How does the lingering mistrust from the financial crisis affect us?
LM: The important thing is how we direct that mistrust. After the 1929 crisis and the Depression, that mistrust or anger was directed against the financial elite. The result was tougher regulation and empowerment of labour — collective bargaining rights, minimum wage laws — that actually ended up strengthening ordinary workers and led to the rise of the middle class.
Tragically now, the right is capturing that anger. The Tea Party, financed by the wealthy, has managed to direct a lot of the anger elsewhere, for example against President Barack Obama’s health-care reform, as if that’s responsible for the deficit. The mistrust is huge today, but sadly, unlike the earlier era, it’s directed against government.
MM: Unions have often worked for greater economic equity by raising working and living standards for workers. Are they still doing that today?
LM: Unions were responsible for creating the middle class as we know it. But they have been disempowered. They have let labour legislation be eroded, minimum wage laws and free trade deals strengthen the power of capital and weaken the strength of labour. When you think about it, the norm in the post-war period was the single-earner family; now it’s the two-earner family. So the middle class has really only been able to keep pace by working twice as hard. As the economy grows, you’d like those gains to be shared. But it’s really only the top 10 percent that has gained at all.
MM: The United Church has a long history of calling for economic justice and greater financial equality in society. Do you see enough of that advocacy today?
LM: The church has been a good voice on that subject; I am not sure it’s getting the attention it deserves. The message of greater social and economic equality is such an important one. Academic research shows how important economic equality is in terms of social and health outcomes. In other words, the well-being of society is very much influenced by the level of income inequality.
MM: How does the gap between rich and poor differ in the United States and Canada?
LM: The rise of extreme inequality is more prominent in the United States. If you go back to the period before 1929, the top one percent of people had 24 per cent of the income. In the post-war period, their share dropped down to a low of nine percent. That money doesn’t disappear; it’s just more equally distributed. Then by 2008, the share of the top one percent reached 24 percent again. That’s the story right there.
Canada has a similar pattern; we go from 16 percent down to 10 percent back to 16 percent. Also, look at the pay of CEOs. In that post-war period, the ratio of the average CEO to the average industrial wage was 25 to one. But today the gap is more typically 250 to one. What has happened is that the real wages of average workers have stagnated. All the gains have gone to the top. It’s obscene.
MM: Much of your book confirms the popular notion that the rich get richer and that government helps them. Aside from financial stability, why does it matter?
LM: One of the reasons our public institutions these days are so dependent on the philanthropy of the rich is that we’ve cut the taxes on the rich so much that our universities and hospitals are left without adequate funding. So naturally they are dependent on the largesse of the rich. It’s a vicious circle. But it makes a huge difference whether the money comes in the form of philanthropy or taxes. Because when it comes in the form of taxes, we collectively get to decide democratically how it gets spent. When it comes as philanthropy, the billionaires decide how it gets spent. I think it matters hugely.
But another thing is the influence of extreme inequality on democracy. Whenever you have that much economic clout, you wind up having more clout over government. And we’re losing our democracy. I’m not against the wealthy as individuals. I’m against them having so much money. I’m against them monopolizing the resources of society.
This story first appeared in The United Church Observer’s October 2011 issue with the title “‘I’m not against the wealthy as individuals. I’m against them having so much money.’”