Saturday, February 17, 2018

On Inequality: Our Own Elite

The Occupy Movement of recent years drew attention to the gross inequality between the income and wealth of the 1% and that of the other 99% - the rest of us. Other groups release statistics like: the richest x% of people own more than the bottom 50%/60%/75% of people. These are shocking statistics to be sure, but in his important book The Vanishing Middle Class, MIT professor Peter Temin argues that in the United States of America there exists two parallel economies, one for the FTE sector (people who work in Finance, Technology and Electronics)  and all the rest. He suggests that the FTE sector consists of about the top 20% of income earners, and the cutoff line is income of about $60,000 annually. (A first class high school English teacher would earn about $50,000, leaving him/her out of the top group.)

Temin makes two important points: any analysis of the economy in the USA that treats the entire economy as a monolith will badly skew the real results. When the same metrics are applied to the parallel economies separately it becomes clear that the rich are doing very well indeed, and the others are not doing well at all.

He also suggests that for most of the folk in the FTE sector there is little chronic worry, and little apprehension about what the future will bring. They do not endure food insecurity or shelter insecurity, they have good health insurance, they do not fear prolonged unemployment, they reasonably expect that their children will have a good education and will prosper, and that their children will inherit substantial assets. And one of the reasons that they feel secure is that governments in the USA work for them; policies and programs are introduced or massaged for the benefit of the top 20%. News coverage of the recent tax cut in USA has made that very clear.

The bottom 80% of income earners generally do endure chronic worry, and the future of their children is not at all ensured.


Pundits in the USA are beginning to worry about the effects of this inequality, because this level of disparity can mean that many people are hungry and losing confidence in the government, and as events in Venezuela are illustrating, when the elites are fat and most folks are hungry, one gets serious social unrest, torches and pitchforks.

I don't think that we have quite the same level of inequality in Nova Scotia, in part because the Canadian finance and tech sectors are not centred here, and in part because there are many civil service jobs in this province, probably many more per capita than PEI or New Brunswick. We do have some industrial barons in Nova Scotia but they tend to be first or second generation entrepreneurs who have invested in plants and equipment and have employed many of their neighbours. Good on them.

I think that in fact our civil servants are our elites. Temin's description (above) of FTE folk enduring little to no insecurity appears to describe our civil servants very well. And the poster children of the elites has to be the province's school teachers.

When the Liberal government was negotiating with teachers last year the press reported that the average teacher's salary was $72,000 p.a. I suspect that the range runs from $50k to $90k. Far more impressive is the value of the benefits: medical, dental and eyecare plans for teachers and families with little or no co-pays, a defined benefit retirement plan which lets teachers retire after 35 years with  a pension equal to 70% of their best five years salary. Oh yes: 2 months off in summer, 2 weeks at Christmas, a week in March, and ten paid days of professional development time scattered through the school year.

These are employees who make no meaningful financial investment in their workplaces. They enjoy ironclad job security; it is almost impossible for a community to get rid of a bad teacher, and when they are removed they are just moved to another school. (What other large organisation does that remind you of?) There are no meaningful competency tests to identify and remove under-performing teachers. It's quite a deal.

When Premier MacNeil imposed a contract on the teachers their union spokesman denounced the move saying that the right to collective bargaining had been trampled. This makes me laugh, because I certainly wouldn't describe negotiations between the government and the teachers  as collective bargaining. To my mind, collective bargaining takes place between workers and their employer, the ones who pay the bills. With the teachers, it is negotiations between two sets of civil servants, with each side knowing very well that whatever  gains the teachers may make the negotiators on the other side will eventually gain also. There is always a rough parity in wage increases and improved benefits amongst all of the civil service groups. It's not collective bargaining - it's two sibling groups dividing up the family pie. And it's industry that provides the pie in the first place.

To describe an economy one must first talk about New Wealth. New wealth is the strength of nations; it is the basis for a nation's prosperity. New wealth is best described as labour applying technology to raw materials to create goods that can be inventoried and sold  outside the economy. Note that new wealth is about goods; it is very hard to export services (possibly in specialised call centres). New wealth is about selling outside the local economy (which could be municipal, provincial or national, depending upon the frame of reference). It's about new money coming into our towns, our province, our country. Think of the company in Great Village that sells hydrophones around the world, or the manufacturing plant on the south shore that sells composite airplane parts to Boeing. Or a saw mill that ships product to the USA.

By definition, the agriculture, fishery, forestry, mining and tourism sectors are also part of new wealth. Some writers include the construction industry in the new wealth sector. Products that substitute for imports are in a close and honourable second tier, because for example, some of the money that we used to spend on imported wine is now being spent on Nova Scotia wine, within our economy.

It is New Wealth that powers our economy, and all other economic transactions consume new wealth. That other includes all government services, police and fire protection, the army and navy, the insurance industry, and the service sector, right down to barbering. And also the teaching profession. It is very true that money will stay in the economy and be used many times before the value is completely lost. Economists call this churn while folks who want government to build them a stadium call it the multiplier effect. But it starts with New Wealth. We cannot maintain a provincial economy where everyone takes in everyone else's laundry.

So if the teachers want collective bargaining with their employer, I would like to nominate some folks to sit on the employer side of the table.

I would invite my neighbour, who is a lobster and herring fisherman. He has about $500,000 invested in his boat, his gear, and his licenses. In the fishing season he works 6 days per week, in the summer he repairs his gear, and in the winter he works other jobs. He generates new wealth; he should sit at the bargaining table.

I would also nominate another neighbour, who has just retired from the local salt mine. The mine runs 24/7/52 and every worker follows the shift rotation of two weeks on days, two weeks on evenings and two weeks on nights. Every one does that, all their working life. There is no such thing as a snow day, as the mine keeps running. So if your shift starts at 11:00 pm and there is a blizzard blowing, you should leave extra early, or stay with friends near the mine; if you don't make it to work your buddy has to work a double shift, and he won't be your buddy for long. The pay is good (not $72k), but it is negotiated with the foreign owners, who expect to make a profit off their labour. The pension plan is good too, but you have to work until you are 65 before you retire. He also generated new wealth; he should sit at the table.

Another neighbour is a farmer. He has as much university education as most teachers. He has almost $1 million dollars invested in his enterprise; some of it his own and much more borrowed. He and his wife and his kids work on the farm 365 days per year. They raise livestock, have them butchered, and process the meat. They don't often make much every year, certainly not $72k. He and his wife should sit at the bargaining table.

There's a man in Amherst who is part owner of a family business (with plants also in Ontario and Kentucky) who should also sit at the table. He and his family have invested in plants and equipment, and they make all manner of customised, printed film products, including food wrap. They employ a lot of people in a stable work environment. This is the man who addressed a manufacturer's meeting in Fall River a few years ago, and said that his company can no longer accept a high school diploma as evidence of literacy and numeracy among applicants for jobs in his plant. I suspect that he needs his workers to be able to read and understand labels, machinery operating instructions, hazardous materials warnings, and to be able to do basic arithmetic (half of this 650 ml bottle of chemical is how many ml ?). They cannot trust a high school diploma  so they administer their own literacy tests to applicants. He should be at the negotiating table also.

That would be collective bargaining between the teachers and the folks that pay for it.

There are a lot of guarantees built into civil service contracts, many of them negotiated at a time when there was much more money in the provincial pot. Will there come a day when my local hospital and emergency room is closing because we have to top up the civil service pension fund? The past promises of generous pensions and benefits to public servants is causing incredible problems in other jurisdictions. The State of Illinois is proposing to float a bond issue of $107 billion (that's billion, with a "B") just to cover the shortfall in their public pension system. They are already so broke that they cannot pay out the winners of the state lottery (that's always good for sales), and their existing bonds are rated one notch above junk. The states of Connecticut, New Jersey and Arizona are also insolvent, with many other states not far behind. Public service pensions and benefits are breaking them. Is that where we are headed in Nova Scotia?

I would like to see the public service negotiate with my "New Wealth" folk.  That would be worth watching . . .

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