FROLITICKS

Satirical commentary on Canadian and American current political issues

May Day is here, but where is organized labour?

Today is May 1rst, a day celebrated in many countries as ‘May Day’, including in Canada and less so in the U.S.  It should be noted that May Day is one of the most important holidays in communist countries such as China, North Korea, Cuba and the former Soviet Union countries.  Since the late 19th century, unions and worker groups have celebrated the first day in May as an International Workers’ Day, since referred to as May Day.  In North America, May Day largely grew out of the 19th-century labour movement for worker’s rights and an eight-hour workday in the U.S. and Canada.  In numerous cities, there will be parades, picnics and celebratory gatherings by both unionized and non-unionized workers and families.  However, historically, both the U.S. and Canada chose to celebrate the contribution of workers on an alternative national statutory holiday in September, ‘Labour Day’.  So much for the history lesson.

The fact is that May Day is celebrated much more in Europe where countries have long ago implemented universal health care systems, extensive social welfare nets, labour standards laws and other programs aimed at improving and protecting the livelihoods and health of workers.  This is why European countries did not need to introduce very many new assistance programs during the current pandemic, as their existing programs, including paid sick leave and unemployment benefits, cover most of the labour force.  Europe remains a relative stronghold of social democracy in which higher levels of taxation fund national health care systems as well as programs that automatically help those who lose their jobs.  In this way, European countries generally seek to limit economic volatility.  In addition, unions play a greater role in Europe than in the U.S., often sitting on management boards in countries like Germany, Sweden, the U.K., Austria, France and several others.  Together with a right to elect work councils, this is often called “codetermination” — something rarely seen in the U.S. or Canada.

On the other hand, the American economy has been described as a study of inequality, with risks and rewards stretching to extremes, and failures often capable of precipitating disaster, as unemployment frequently separates people from their health insurance policies.  This has forced the U.S. to be much more dependent on economic growth and emergency relief injections if something goes wrong, as it has under the current pandemic.  The Biden administration is pouring trillions of dollars into supporting American families and communities adversely affected by the pandemic, hoping to stimulate the economy as the U.S. emerges eventually from government-imposed shutdowns.  Increasing economic growth is expected to continue, but there are questions as to just who will benefit from such growth?  Recent studies have indicated that the rich have gotten richer.  Wall Street has thrived versus the evident losses experienced by the Main Street economy, especially small businesses and their workers.

With the decline in private sector unionization in the U.S. and Canada, there are fewer and fewer workers willing to march on this May Day.  The pandemic may have greatly knocked the wind right out of the unions’ sails.  There is also every indication that the pandemic may further reduce the number of good paying blue collar jobs, leaving many workers scrambling to secure employment in lower paying non-unionized jobs.  Alas, it is really difficult to happily celebrate this year’s May Day, or next Labour Day for that matter.

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CEOs Continue to be Overpaid Despite Significant Layoffs in Several Sectors

A recent New York Times report notes that Chief Executive Officer (CEO) pay remains stratospheric, even at companies battered by pandemic.  For years now, I have been studying how CEO compensation has steadily been on a ridiculous climb whereby, according to the Economic Policy Institute, CEOs of big American companies now make on average 320 times as much as their typical worker.  The report notes that in 1989, that ratio was 61-1.  From 1978 to 2019, compensation grew 14% for typical workers.  During the same period it rose 1,167% for CEOs.  The same situation holds true in Canada where, for example, between 1995 and 2007 there was a 444% compensation increase for top Canadian CEOs.

Add it all up and it’s clear that executive pay is on the rise once again despite the millions of workers affected by layoffs due to the pandemic.  Executive compensation is again rising at a much higher rate than employee pay, inflation or even corporate performance.  The old justification that they deserve it based on performance doesn’t wash in many cases.  The Times article noted the following companies’ CEO compensation for last year.  Boeing’s CEO, David Calhoun, was rewarded with some $21.1 million in compensation despite Boeing having had a historically bad 2020.  Norwegian Cruise Line barely survived the year, but the pay of Frank Del Rio, its CEO, was doubled to $36.4 million.  Hilton’s CEO Chris Nassetta received compensation worth $55.9 million in 2020 despite nearly a quarter of the corporate staff members being laid off as hotels around the world sat empty and the company lost $720 million.  General Electric’s CEO, Larry Culp, received $73.2 million last year and could collect well over $100 million more, thanks to a recently updated pay plan.  GE is still reeling from years of mismanagement.

The above noted examples are just a few in a continuing saga of CEOs being outlandishly paid for simply being CEOs, despite companies having difficult times as a result of the pandemic.  Firms will argue that much of this ridiculous situation is a result of how the market has evolved over the years regarding competition for so-called top managers.  They pay lip service to the importance of supporting their workers, but still believe that their CEOs deserve more than 300 times the compensation of those very same workers.  In Japan, and throughout much of Asia for that matter, there’s a much more balanced approach.  In 2007, Japanese CEOs were making on average only 10 times to 15 times more than their base level employees.  When their companies don’t do well, Japanese CEOs insist on taking a comparable pay cut unlike most American and Canadian CEOs.

A sad part about this pandemic on the economic front is that it continues to contribute to the growing societal inequalities that have needlessly evolved over the several decades.  To deal with the economic impact of the pandemic and the deficits incurred by governments at all levels, there needs to be an increase in taxes on multi-millionaire CEOs and billionaires, most of whom have evidently benefited from soaring stock markets.  Failure to deal with increasing inequities will result in more societal pain and poverty.

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U.S. has tended to prioritize private wealth over public resources

Kids are sitting in front of fast food outlets trying to do their homework on their note books or lap tops because they have no access to the Internet at home.  This has been a major issue during the pandemic because of school closures and children being forced to do full-time on-line learning.  This is happening in the same country that just put another rover, fresh off its flawless landing, on the surface of Mars — an extraordinary engineering feat and once again proving that when it comes to space exploration, no one does it better than the U.S.  Yet when it comes to maintaining its public infrastructure, the American Society of Civil Engineers earlier this month gave the country a C-minus for the overall quality of its infrastructure.  Then there was Texas’s  failure to properly weatherize and maintain power generation systems which led to the most recent massive power crisis and subsequent water crisis which lasted for weeks in some counties.

Take the American health care system which is among the most advanced in the world, but only for some.  Remember that the U.S. is the only major industrialized country that doesn’t have a universal healthcare system.  Instead, a significant proportion of the population lack sufficient health insurance and have to depend on publicly under-funded hospitals and clinics that in turn lack adequate resources to treat their patients.  Even in good times the U.S. records higher mortality rates and earlier deaths than other countries, especially among Black, Latino or Native American citizens.  Unfortunately, the pandemic highlighted this tragic situation whereby the U.S., accounting for just four percent of the world’s population, had 20 percent of worldwide coronavirus deaths.  While, American scientists, laboratories and pharmaceutical companies helped in record time to develop effective vaccines, the country has consistently lagged behind other developed nations in the more elementary tasks of coronavirus testing and prevention.

The U.S. once was at the forefront of advances in green technologies, much like it had been in computer technologies.  Unfortunately, the Trump administration ended American participation in the Paris Accord on Climate Change and set back American initiatives in tackling the causes of global climate change.  Although the Biden administration has indicated that climate change is once again a priority issue on its agenda, it will take time to repair the damage inflicted by Trump on the Department of Environment and its programs related to air, water and soil quality.  Instead, numerous federally protected lands were opened up to pipeline construction, mining and drilling by the private sector.  The negative impact on valuable non-renewable resources will no doubt take time to be reversed, much to consternation of Americans.

If anything, the pandemic has drawn attention to the need for the U.S. to adequately invest in upgrading, maintaining and expanding its existing public infrastructure.  This applies not only to energy sources, public roads and bridges, but also to Internet access and the public health care system.  Failure to do so will only further lead to great inequities among Americans at the expense of their livelihoods and health and safety.

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There is little doubt that Walmart is part of an oligopoly

As supplier of produce and goods, you don’t have much choice now but to deal with one or more of the large retail distribution firms in Canada and the U.S.  In recent years the choice of which retail outlets to deal with has greatly narrowed.  What the pandemic has highlighted economically is that certain sectors in both countries are basically controlled by a few large companies who make up oligopolies.  The Oxford English Dictionary defines “oligopoly” as “a state of limited competition in which a market is shared by a small number of producers or sellers.”  Today, as a supplier, one has little choice but to deal with the likes of Walmart, Cosco, Loblaws, Amazon, etc.

These large enterprises in turn are increasing their sales through online ordering, a somewhat costly transition but a necessary one.  The pandemic and changing customer preferences for shopping have speeded up this process.  In the meantime, these companies have recently introduced new higher supplier fees, arguing that they are intended to help cover the cost of modernization plans, especially those related to improvements in e-commerce and to help pay for upgrades.  The introduction of these higher fees set off a prolonged conflict between manufacturers and supermarket chains, a few of which like Loblaws Canada sought to charge similar supplier fees.  Walmart for one said the fees were a fair trade-off for suppliers, since the proposed investments would lead to sales growth.  Walmart and Loblaws have now set a dangerous precedent in the sector by asking suppliers to help cover the costs of new investments.

It’s understandable that suppliers are enraged by these new fees, wondering why they are being forced to subsidize the likes of Walmart and Loblaws to modernize their businesses.  Given the nature of oligopolies and their desire not to increase their retail prices to consumers, what’s frustrating is that the suppliers may not have any choice but to accept the additional costs and reduce their profit margins accordingly.  Several may even find it difficult to survive by doing so, including some of the independent grocers.  What’s even more frustrating, due to the pandemic’s impact resulting from the frequent closures of medium and small retail businesses, these larger companies have significantly increased their overall profits for the last year.  For example, Walmart reported record revenue worldwide of over US$152 billion in the fourth quarter of 2020, a 7.4 percent increase over the previous year. 

Governments have legislation regulating “monopolies” which inevitably reduce competition in the economy, affect the normal operations of the free market and increase costs to consumers.  Perhaps it’s about time that governments take a closer look at oligopolies as suggested by a number of industry organizations.  In addition, maybe corporations like Walmart and Loblaws could reintroduce or increase hazard pay to their employees as long as the pandemic continues.   Through the end of 2020, the total additional COVID-19 compensation Amazon and Walmart provided to their frontline workers represented only a small fraction of the companies’ extraordinary earnings, and an even smaller percentage of the stunning, pandemic-fuelled wealth created for their richest shareholders. 

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Did the U.S. and Canadian Economies Hit Bottom in 2020?

Starting back in March/April of last year, economists began to see that the lockdowns and restrictions caused by COVID-19 were beginning to show a detrimental impact on both the American and Canadian economies.  The economic decline is clearly shown by the Gross Domestic Product (GDP) statistics which are used as a comprehensive scorecard of a given country’s economic health.  As a broad measure of overall domestic production, the GDP is defined as the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

The U.S. GDP shrank by 3.5 percent last year as the novel coronavirus upended American businesses and households, making 2020 the worst year for U.S. economic growth since 1946. Similarly, the real GDP in Canada decreased 5.1 percent in 2020 (from the 2019 annual level to the 2020 annual level), compared with an increase of 2.2 percent in 2019.  In addition, unemployment rates in both countries climbed and continue to climb to this day with new layoffs by major companies being announced daily.

The real question now is as to whether the economies have hit bottom?  Or will things just get worst as we continue to battle the current coronavirus outbreaks, especially the new variants, and the rate of vaccinations continues to lag behind?  Optimistically, economists surveyed by the Wall Street Journal predict a strong rebound in 2021, with the economy growing by 4.3 percent.  Looking forward in the long-term in Canada, the GDP growth rate is projected to trend around 2.70 percent in 2021 and 1.70 percent in 2022, according to several econometric models.  Nothing really to brag about!  The Chinese GDP is expected to grow by over 6.0 percent this year.

While GDP projections are all good and dandy, there are several issues of concern when it comes to both economies.  The longer the pandemic reigns, the biggest concern continues to be the impact on small businesses.  Many small businesses in the retail and service sectors will not survive.  Remember that small businesses are still the biggest creators of new employment.  Travel, hospitality and recreational sectors have also been hit hard, and their survival will greatly depend on how quickly their customers feel safe enough to once again travel.  One must ask also just how well our health care systems will cope with rising COVID cases?  In addition, the economy will emerge in a very different form, especially when it comes to the make up of the labour market and the increasing use of new technologies.  We more than likely will continue to see high unemployment rates in the near future, especially among women, youth, minorities and vulnerable groups.  Given continuing job security concerns, will people begin to once again consume at normal rates?  My feeling is that our economies have not as yet really hit bottom.  Unfortunately, it may be months before one really sees any kind of actual turnaround.

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Well, Mr. President, Where Is Your Economic Boom Going Now?

On October 28th, the S&P 500 Index fell 3.5 percent, the biggest drop since June, amid a surge in COVID-19 cases and hospitalizations, especially in the U.S. Midwest.  There was also a significant drop in European stock values where there have been rising coronavirus infections and even tougher lockdowns.  In addition, American lawmakers failed to agree on an economic aid package before the Nov. 3rd election thereby eliminating any stimulus in the very near future.  The West Texas Intermediate crude sank 5.6 per cent to US$37.36 a barrel because of fears that additional economic restrictions will have a further negative impact on the already hard hit travel industry and daily commuting. 

The timing of this significant downturn could not be at a worst time for Donald Trump, less than a week before the election.  Trump has consistently used the stock markets as an indication of an economic recovery.  The problem is that the markets do not necessarily reflect what’s actually happening on main street.  For one thing, the U.S. Bureau of Labour Statistics showed that the unemployment rate declined to 7.9 percent in September 2020 from 8.4 percent in the previous month.  However, this was below market expectations of 8.2 percent, as fewer people were looking for jobs.  The labour force dropped by 0.7 million to 160.1 million, with the number of unemployed persons falling only by 1.0 million to 12.6 million and employment rising by just 0.3 million to 147.5 million.  Moreover, the jobless rate remained well above pre-pandemic levels as the recovery from COVID-19 shock showed signs of slowing amid diminishing government stimulus and record spikes in new coronavirus cases.

The President’s campaign has put all his eggs in the one basket, that of the economy.  He continues to downplay the terrible impact of COVID-19 on the economy.  While Trump’s rich friends have benefited from the recent stock market gains, the average American continues to suffer from the loss of business and employment, not to mention the health care costs associated with the coronavirus.  The bottom may be about to fall out of the President’s campaign.  One can only predict that the U.S. has headed into a major recession, one which may be greater than that of the Great Recession and may last longer.  Whoever becomes the next president will have to deal with this economic mess, which can only begin by reducing the COVID-19 case loads and providing an appropriate economic stimulus package.

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Squeezing the Middle Class: The Proof is in the Pudding

Over the last few years, numerous studies have come out which confirm beyond a doubt that the incomes of those in the American middle class have slowly but surely shrunk.  The most recent one just released by Stephen Rose of George Washington University, Urban Institute, highlights this fact by looking at income trajectories from 1967 to 2016.  In his study he concludes, and I quote from his main findings:

  • “ The median income growth experienced by prime-age Americans over a fifteen-year period has been cut by almost two thirds, from 27% to 8%.
  • The proportion experiencing a large income loss has more than tripled, from 4% to 12%.
  • The upper middle class has expanded significantly, while the “middle” middle class (MMC) has shrunk from 50% to 36%.
  • Income growth at the top of the distribution has been almost twice as fast as in the middle (48% at the 95th percentile, compared to 26% at the median).
  • Upward mobility out of poverty has declined, from 43% to 35%.
  • Downward mobility from the MMC has doubled, from 5% to 11%.
  • The proportion of Black Americans in the upper middle class has increased significantly, from just 1% to 14%. But large race gaps remain: 39% of whites are in the upper middle class or higher.
  • More education has become more closely associated with a higher income; 59% of those with a BA+ are in the upper middle class or higher, up from 37%. ” 1.

Meanwhile, several other studies have shown that during the last few decades, the rich have been getting richer.  One such study in December 2014 by the Pew Research Center found that the wealth gap between the country’s top earners and the rest of America had stretched to its widest point in at least three decades.  The same report also noted that the Great Recession of 2008-09 had destroyed a significant amount of middle-income and lower-income families’ wealth, and the economic ‘recovery’ has yet to be felt for them.  According to a 2019 working paper on wealth inequality by University of California at Berkeley economist Gabriel Zucman, the 400 richest Americans — the top 0.00025 percent of the population —tripled their share of the nation’s wealth since the early 1980s.  Zucman also found that U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties.  Those 400 Americans now own more of the country’s riches than the 150 million adults in the bottom 60 percent of the wealth distribution. 2.

Once again, initial indications are that the middle class is being particularly hurt by the novel coronavirus pandemic, such that some refer to the current economy as the depression of minivans.  There is little doubt that there are two economies at this time: that of wall street and that of main street.  Gabriel Zucman writes that the wealthy use their money to buy political power, and they use some of that power to protect their money.  On the other hand, middle-class families tend to use their wealth to save for rainy-day expenses or to draw down on for retirement.  With the pandemic and ensuing high levels of unemployment in key sectors, the middle class is having to draw down on their savings just to survive.  Under the Trump administration which believes that wall street depicts the current state of the economy, wealthy Americans continue to thrive, including the Trump family.

1. Squeezing the Middle Class: Income Trajectories From 1967 to 2016: Stephen Rose, Economic Studies at Brookings, August 2020

2. Wealth concentration returning to ‘levels last seen during the Roaring Twenties,’ according to new research: Christopher Ingraham, Washington Post, February 8, 2019

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