Category: Economics

Matters of money

Preliminary response to Canada’s Indian Residential Schools Truth and Reconciliation Commission

Canada was founded upon a grave injustice: the appalling mistreatment of North American indigenous populations by European settlers, including countless acts of physical and cultural violence.

Days ago, the The Truth and Reconciliation Commission of Canada released their final report. One part, on page 20 of the summary, seems especially important:

Together, Canadians must do more than just talk about reconciliation; we must learn how to practise reconciliation in our everyday lives — within ourselves and our families, and in our communities, governments, places of worship, schools, and workplaces.

The argument that we bear no moral responsibility for the choices of our ancestors, and that we have no responsibility for systemic patterns of oppression that still exist, is logically and ethically weak. Similarly, the argument that colonization happened so long ago that no recourse is possible or necessary today ultimately perpetuates structures of injustice.

Conversely, the idea that we can to some extent make a sincere and meaningful effort to atone for past and present failings has great appeal. Having dispossessed sophisticated societies of almost all their land and spent decades treating aboriginal people with either cynical viscousness or inhuman contempt, it’s shocking and wrong that a rich state like Canada tolerates the conditions under which too many indigenous people live. There’s no non-aboriginal Canadian community where the question of whether they get drinkable water depends on whether the municipal, provincial, or territorial government is fond of the local mayor, but many aboriginal communities today function under conditions that would spur immediate attention and action for non-aboriginals.

As the first step toward reconciliation, this has to end. Scholars like Taiaiake Alfred are right to question the basic legal and moral validity of the Canadian state, built as it was upon imperialism and conquest. As Alfred explains in Peace, Power, Righteousness: An Indigenous Manifesto (2008):

All land claims in Canada, including those at issue in the BC treaty process, arise from the mistaken premise that Canada owns the land it is situated on. In fact, where indigenous people have not surrendered ownership, legal title to “Crown” land does not exist — it is a fiction of Canadian (colonial) law. To assert the validity of Crown title to land that the indigenous population has not surrendered by treaty is to accept the racist assumptions of earlier centuries.

Canada’s aboriginal peoples would probably be justified in pointing to centuries of mistreatment and treaty violations as just cause for settlers to be expelled. But, based on my limited knowledge and experience, that’s not what anyone is asking for. Most indigenous Canadians who I have met want the spirit of the treaties honoured: to share the land, and to live in peace and friendship.

I am acutely aware of how unqualified I am to discuss these matters. In my defence, I am working to develop a base of knowledge for my academic work. In addition to Peter Russell’s Recognizing Aboriginal Title: The Mabo Case and Indigenous Resistance to English-Settler Colonialism, I am currently reading Dwight Newman’s The Duty to Consult: New Relationships with Aboriginal Peoples and the Kino-nda-niimi Collective’s impressive and inspiring volume The Winter We Danced: Voices from the Past, the Future, and the Idle No More Movement.

The G7 on getting beyond fossil fuels

Regardless of whether you think the commitment is credible, a position on climate change adopted by the G7 bears consideration:

“At yesterday’s summit in Bavaria, the G7 leading industrial nations agreed to phase out fossil fuels by the end of the century.”

For one thing, it’s questionable when politicians set goals so far off in the future. For another, we need to phase out fossil fuels much more rapidly if we’re to avoid catastrophic climate change. Nonetheless, there’s one important message here: fossil fuels have no long-term future, and that is increasingly being recognized by the world’s most powerful governments.

Hopefully, this will help people come to grips with the implications of the carbon bubble, and make people think more critically about the appropriateness of building long-lived new fossil fuel infrastructure like pipelines.

Lack of justification for high executive pay

The most convincing proof of the failure of corporate governance and of the absence of a rational productivity justification for extremely high executive pay is that when we collect data about individual firms (which we can do for publicly owned corporations in all the rich countries), it is very difficult to explain the observed variations in terms of firm performance. If we look at various performance indicators, such as sales growth, profits, and so on, we can break down the observed variance as a sum of other variances: variance due to causes external to the firm (such as the general state of the economy, raw material price shocks, variations in the exchange rate, average performance of other firms in the same sector, etc.) plus other “nonexternal” variances. Only the latter can be significantly affected by the decisions of the firm’s managers. If executive pay were determined by marginal productivity, one would expect its variance to have little to do with external variances and to depend solely or primarily on nonexternal variances. In fact, we observe just the opposite: it is when sales and profits increase for external reasons that executive pay rises most rapidly. This is particularly clear in the case of US corporations: Bertrand and Mullainhatan refer to this phenomenon as “pay for luck.”

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 334-5 (hardcover)

Piketty on “the illusion of marginal productivity”

Let me now return to the explosion of wage inequality in the United States (and to a lesser extent Britain and Canada) after 1970. As noted, the theory of marginal productivity and of the race between technology and education is not very convincing: the explosion of compensation has been highly concentrated in the top centile (or even the top thousandth) of the wage distribution and has affected some countries while sparing others (Japan and continental Europe are thus far much less affected than the United States), even though one would expect technological change to have altered the whole top end of the skill distribution in a more continuous way and to have worked its effects in all countries at a similar level of development. The fact that income inequality in the United States in 2000–2010 attained a level higher than that observed in the poor and emerging countries at various times in the past — for example, higher than in India or South Africa in 1920–1930, 1960–1970, and 2000–2010 — also casts doubt on any explanation based solely on objective inequalities of productivity. Is it really the case that inequality of individual skills and productivities is greater in the United States today than in the half-illiterate India of the recent past (or even today) or in apartheid (or postapartheid) South Africa? If that were the case, it would be bad news for US educational institutions, which surely need to be improved and made more accessible but probably do not deserve such extravagant blame.

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 330 (hardcover)

No mild inegalitarianism

To my knowledge, no society has ever existed in which ownership of capital can reasonably be described as “mildly” inegalitarian, by which I mean a distribution in which the poorest half of society would own a significant share (say, one-fifth to one-quarter) of total wealth.

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 258 (hardcover)

Inequality in labor and capital income

[T]he upper 10 percent of the labor income distribution generally receives 25-30 percent of total labour income, whereas the top 10 percent of the capital income distribution always owns more than 50 percent of all wealth (and in some societies as much as 90 percent). Even more strikingly, perhaps, the bottom 50 percent of the wage distribution always receives a significant share of total labor income (generally between one-quarter and one-third, or approximately as much as the top 10 percent), whereas the bottom 50 percent of the wealth distribution owns nothing at all, or almost nothing (always less than 10 percent and generally less than 5 percent of total wealth, or one-tenth as much as the wealthiest 10 percent). Inequalities with respect to labor usually seem mild, moderate, and almost reasonable (to the extent that inequality can be reasonable – this point should not be overstated). In comparison, inequalities with respect to capital are always extreme.

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 244 (hardcover)

What’s finite and what’s flexible

We know that we are trapped within an economic system that has it backward; it behaves as if there is no end to what is actually finite (clean water, fossil fuels, and the atmospheric space to absorb their emissions) while insisting that there are strict and immovable limits to what is actually quite flexible: the financial resources that human institutions manufacture, and that, if imagined differently, could build the kind of caring society we need.

Klein, Naomi. This Changes Everything: Capitalism vs. The Climate. p. 347 (hardcover)

“Love Will Save This Place”

The power of this ferocious love [for places where people live and where they care about] is what the resource companies and their advocates in government inevitably underestimate, precisely because no amount of money can extinguish it. When what is being fought for is an identity, a culture, a beloved place that people are determined to pass on to their grandchildren, and that their ancestors may have paid for with great sacrifice, there is nothing companies can offer as a bargaining chip. No safety pledge will assuage; no bribe will be big enough. And though this kind of connection to place is surely strongest in Indigenous communities where the ties to the land go back thousands of years, it is in fact Blockadia’s defining feature.

Klein, Naomi. This Changes Everything: Capitalism vs. The Climate. p. 342 (hardcover)

OMG NDP!

Too bad they have such a misguided climate and energy policy:

Party leader Rachel Notley has said on the campaign trail that she would withdraw support for the Northern Gateway pipeline, but the NDP is interested in proposals to expand the Trans Mountain line and build the Energy East pipeline to Atlantic Canada.

Of course, it would be hard to be worse than the Alberta PCs or Wildrose on this issue.