Dr. Anne Golden, C.M.
President and CEO, The Conference Board of Canada
Wednesday, November 9, 2011 — Toronto, Ontario
This is my 11th Honorary Associate Award dinner and the last one that I shall co-host as President and CEO. So while this is always a high point of the year for me, this speech comes with more than the usual sentiment.
One of the reasons that I was attracted to The Conference Board of Canada more than 10 years ago is that it is an organization that measures a country’s progress by more than economic indicators.
Even though the Conference Board has a mainly corporate board, a well-earned reputation for economic forecasting and analysis, and a business orientation, we have always understood that economic and social performance are inextricably linked and, in effect, are two sides of the same coin.
I am proud of our balanced, holistic approach to economic trends, public policy, and organizational performance.
How Canada Performs is one of our flagship products. It helps leaders identify relative strengths and weaknesses in Canada’s socio-economic performance by comparing Canada to 16 peer countries in six categories: Economy, Innovation, Environment, Education and Skills, Health, and Society.
We recently published two studies on income inequality – one giving the global picture and the other focusing on Canada.
Using the most common measure of income inequality – the Gini index, named after the Italian statistician Corrado Gini (Trivial Pursuit) – we found that over 70 per cent of the world’s people live in countries where income inequality has been growing – this list includes Canada.
Furthermore, this inequality is growing faster in Canada than it is in most other peer countries, even faster than in the United States – although the actual gap between rich and poor is still far greater south of the border.
The widening gap is a cause for concern. Our nation now ranks 12th out of 17 peer countries, and earns a grade of “C” for income inequality. We were in 10th spot in the mid-1990s. We are moving in the wrong direction.
While statistics are hard to digest over dinner, the numbers matter. Since 1976, only the richest group of Canadians – the top 20 per cent – increased its share of national income. All other groups lost share. In fact, the richest 1 per cent of Canadians took home almost a third of all growth in incomes from 1998 to 2007.
Put another way, the average income of the poorest quintile grew by just $2,100 over 33 years between 1976 and 2009, after accounting for inflation as well as taxes and transfers, from $12,400 to $14,500. The real incomes of the richest fifth grew by $27,300 – 13 times as much. The average income of the middle quintile grew by just 6.0 per cent in real terms over a third of a century – close to stagnation.
We fielded dozens of interview requests on the two studies. The attitudes of interviewers ranged from those who, like us, see rising income inequality as a concern, to critics such as Kevin O’Leary who dismissed our analysis as “evil thinking.” Here’s what Kevin had to say: [PLAY VIDEO]
Thank you, Kevin. Tonight, I will explain why growing income inequality does matter.
At the 2011 World Economic Forum in Davos, income inequality was singled out as one of the two most serious challenges facing the world, corruption being the other. While globalization and market capitalism have improved living standards for billions of people in the world, particularly the BRIC countries, it has concentrated billions of dollars among the few.” Inequality has been lowered among countries, but raised within most countries. Even in Canada, where income inequality is much less severe than in other countries, the yachts are rising faster than the rowboats.
The rise in income inequality in Canada poses three important questions: First, what does it mean for the economy? Second, what does it mean for society? Third, what does it say about our values – in short, is it fair?
Historically, the answer to the first question – what does it mean for the economy? – has been that income inequality promotes economic growth because it created a class of very rich people who would provide the money for investment in the physical capital required for growth. It was part of the received wisdom of the time that inequality provides the incentive for people to work hard so they too can move up the ladder.
Fast forward to 2011, and it is time to update our thinking.
There is new research coming out of the International Monetary Fund demonstrating that, when economic growth is looked at over the longer term, the supposed trade-off between efficiency and equality may not exist. In fact, IMF economists conclude that a measure of equality may be an important ingredient in sustaining economic growth. Of course, some inequality is needed to drive ambition. But, if our goal is sustainable prosperity, then a broader distribution of income is better.
The main reason for this is the shift from physical capital to human capital as a global economic driver. According to the World Bank, when physical capital was the priority, economic growth was spurred by wealthy investors. But with the increasing emphasis on human capital, and more specifically on the need for a skilled and knowledgeable workforce, economic growth is deeply affected by factors that limit access to widespread education and skills development. Broadly accessible education is harder to achieve in a highly unequal society.
Recent research also compels us to revisit the income mobility argument – the idea that as long as people are able to transition into higher income groups, we don’t need to worry about the rich-poor gap. New data show that, in most OECD countries, higher inequality is associated with less, not more, income mobility.
Turning to the second question – what does rising income inequality mean for society? – it seems to me that when people feel excluded from opportunity, when they see their incomes stagnating, especially in this period of economic volatility, social cohesion is bound to be affected.
The “Occupy Wall Street” protest is a case in point. What began in New York quickly went global. Whether or not you agree with the demonstrators’ tactics and regardless of the lack of a clear or unifying agenda, the message cannot be ignored.
The rallying cry of the protest was “We are the 99 per cent.” The 99 per cent refers to the widely circulated statistic that one per cent of the American population earns a disproportionate share of income (20 per cent) and holds disproportionate share of the country’s wealth (more than a third).
Driving the protest in North America is a sense of injustice about the extent of inequality and the fact that while millions are unemployed and the majority have fallen behind, those who have caused the problems are cashing in.
Although Canada has traditionally chosen an approach that has sought to mitigate the harsh edges of capitalism, we are not immune from the protests and the sentiments inspiring them. We don’t know what the tipping point is and, undoubtedly, it differs by country and by culture.
The effects of growing inequality are becoming visible close to home. More than a decade ago, when I was at United Way of Greater Toronto, we began to study poverty by census tract. We learned that the city was becoming segregated geographically along income lines.
Recent research at University of Toronto suggests that this trend will continue. In 1970, two-thirds of Toronto neighbourhoods were middle class; by 2025, it is projected that only one in five, or 20 per cent will be middle class. Over the same period, low income neighbourhoods will multiply in number (from just one per cent to an astounding 30 per cent), and the percentage of high income neighbourhoods will triple (from 7 per cent to 20 per cent). We are seeing a shrinking in the number of middle-income neighbourhoods in Toronto, as rich and poor grow further apart.
I am not trying to paint a picture of Canada as a country in crisis or without opportunity, but the latest trends merit our attention.
There is a point at which income inequality contributes to a decline in trust – trust in our leaders and our institutions. By trust, I mean the threshold in our minds that determines whether we are willing to engage in cooperative behavior. Successful societies depend on citizens trusting each other and their leaders, feeling their contributions are valued and their efforts offer some promise of hope for something better.
And so we arrive at our third question: what does income inequality say about our values; in short, is it fair?
We need to think deeply about the kind of Canada we envision for our future. Do we want a society where the majority of the population falls further and further behind, and where a small group of Canadians enjoys most of the increase in national wealth? If, as I believe we agree, the answer is “no,” then our shared objective – for The Conference Board of Canada, and for each of us – must be to work together on developing a sustainable Canadian culture of opportunity, productivity, and personal worth.
Tonight we honour a member of our community who exemplifies the qualities our country needs for positive progress.
The Honorary Associate Award being given this evening reflects the long-held Conference Board of Canada conviction that a nation can be successful only when it integrates its social and economic dimensions.
The criteria for this award include more than just business success; the recipient must have also demonstrated a commitment to the public good through engagement in the community and philanthropy.
Serge Godin represents what we want to see in our leaders – hard work, innovation, and a commitment to give back to his community.
Serge has shown all of us that it is possible to build a leading global company from a base in Canadian communities. And Serge stands out as a champion of Canada – as someone who believes passionately in the idea that Canadian entrepreneurs should have global ambitions, that Canadian communities should be platforms for global growth, and that Canadian public policy should shape an environment that enables all Canadians to build better lives for themselves within the global economy.