How corporations are shaping income inequality in Canada

The concentration of power in the corporate sector is perpetuating income inequality trends in Canada, according to a report published by the Canadian Centre for Policy Alternatives (CCPA, a member organization of Social Watch). The study, “A Shrinking Universe: How Concentrated Corporate Power is Shaping Income Inequality in Canada”, links the rise of the richest Canadians with a shift toward more concentrated power within the country’s largest firms.

“Something dramatic happened in Canada after 1980s: the top 60 firms have effectively delinked from the rest of the corporate universe, and we now see a staggering degree of concentrated power,” wrote the study’s author Jordan Brennan. “That’s interconnected with the concentration of income among Canada’s richest 1%, especially among the richest 0.1% -- a factor driving income inequality trends,” remarked Brennan, a George Brown College political scientist.

The study tracks the dual concentration of income and corporate power in Canada:

■ The share of national income going to corporations in the form of profit was higher in 2008 than it had been in five decades.

■ In the early-1950s, the share of national income going to the top 60 Canadian-based firms in the form of corporate profit was 2%, staying at that level for four decades. By 2006, it reached 5.5%, almost a three-fold increase.

■ In the mid-1970s, the top 60 Canadian-based firms accounted for 15% of all equity market capitalization and 30% of all corporate profit. More recently, the top 60 made up 67% of all equity market capitalization and 60% of all corporate profit, a staggering development.

■ In the mid-1970s, an average firm within the top 60 was three times larger than an average firm listed on the TSX. In 2008, it was 23 times larger.

■ In the mid-1960s, the average net profit of a firm within the top 60 was approximately 1,000 times larger than an average firm. By 2009, that ratio had risen to 12,000 – that’s a 12-fold increase in just four decades.

During this time frame, the richest 1% enjoyed a greater share of Canada’s income pie while income inequality reached troubling new levels.

“When we speak about Canadian business or the corporate sector, we are effectively referring to 60 firms that dominate the push for corporate profits and help shape income inequality trends in Canada,” Brennan noted. “It’s a phenomenon well worth paying greater attention to in Canada.”

“These are not good times,” wrote columnist Thomas Walkorn in an article for the Ontarian newspaper The Record. “In these days, it’s useful to try to figure out why all of this is going on. And that’s where the CCPA, an openly leftish think-tank, performs a handy service. The centre’s latest effort is a broad and rather subtle study by (…) Jordan Brennan that tries to come to grips with why so many people are, in relative terms, so badly off.”

According to Walkom, “Brennan’s paper is a critique not only of the economy but of the way most of us look at the economy,” because it takes into question “widespread, if unstated, assumptions”, among them “that CEO’s or derivative traders earn their seven-figure paycheques because they are in some way uniquely productive, while the rest of us don’t because, well, we’re not.”

“He advances a view that is not new but that is rarely heard today — that income is not distributed through the competitive magic of the impersonal market, but through naked power struggles in institutions that are near-monopolistic,” the columnist added.

“Brennan starts with the growing income inequality in Canadian society between those at the very top — the so-called one per cent — and the rest of us. He makes the point, which should be obvious but isn’t, that in the developed world relative poverty not absolute squalor is the problem — that social pathology is not solved in Canada just because the underclass has enough SpaghettiOs to eat,” remarked Walkom.

“When did this start to happen? (…) Brennan makes a good, if not entirely new, argument that the real turning point in Canada occurred in the 1990s when globalization pacts, including the North American Free Trade Agreement came into play. This was also the time when the developing world, led by China and India, began to sign on enthusiastically to an agenda of trade and investment liberalization,” noted the journalist.

“Free trade with the U.S. and Mexico sandbagged much of Canada’s manufacturing base. Trade with China sandbagged the rest. Investment protection deals such as NAFTA and the new Canada-China pact have weakened government’s ability to regulate. All of this has decimated unions, allowing bosses to pay their workers less and themselves more,” explained Walkom.

“Brennan points out that, on average, the country’s top 60 corporations did particularly well. He also argues that foreign investment — by both Canadian firms acquiring outside assets and outsiders acquiring Canadian companies — has accelerated the trend toward inequality. Experts in the field can argue over the details of this paper. I think he’s, at the very least, on the right track,” concluded the columnist.

More information
A Schrinking Universe:

The Record: