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Why isn’t the free trade era delivering better jobs?

With the 2015 federal election fast approaching, Canadians can expect a lot of loud government messaging about its ‘sound economic management’, including some trumped-up claims about how joining more — and ever more elaborate — trade and investment liberalization agreements will boost Canada’s national prosperity.

And now that the federal NDP seems to be recoiling from criticism of new trade and investment deals, the Harper Conservatives will be free to exaggerate — even fabricate — the benefits of Canada’s quarter century-long experiment with ‘free trade’. The only opposition the government will face on this file are the facts.

Far from spawning higher levels of investment and GDP growth, Canada’s great era of trade and investment liberalization — which began with the Canada-U.S. Free Trade Agreement in 1988 — has been marked by underinvestment and sluggish growth in both employment and GDP.

In the 25 years prior to 1988, the rate of growth of business investment in fixed assets — a key driver of growth — averaged 4.8 per cent per year. Private sector employment grew at 2.4 per cent and GDP per capita at 2.8 per cent. All three growth rates were halved in the 25 years after 1988, falling to 2.4 per cent, 1.3 per cent and 1.2 per cent, respectively. What’s more, the average unemployment rate increased from 7.1 per cent to 8.1 per cent between the two quarter-century periods — a statistic which ignores the rise of more precarious forms of employment.

How do we explain the disconnect between political cheerleading for trade and investment liberalization agreements (like the CETA) and Canada’s poor investment, employment and growth performance in the free trade era? The answer has as much to do with power as it does with markets.
The trade and investment liberalization regime led to rapid and relentless restructuring of North American corporate ownership by opening the door to the two largest merger waves in Canadian history. On the world stage, these merger waves led to higher levels of Canadian corporate ownership abroad. Domestically, heightened amalgamation activity created larger Canadian-based corporations — and the attendant market power that greater size bestows.

Increased corporate concentration — power, in other words — has contributed to both slower GDP growth and heightened income inequality.

Between 1914 and 1988, for every dollar spent on expanding industrial capacity, Canadian business spent an average of just 23 cents on mergers and acquisitions (M&A). Between 1988 and 2013, an average of 93 cents was spent on M&A for every dollar ploughed into industrial capacity — a four-fold increase. Large firms are spending nearly as much acquiring their rivals as they are on new structures and an expanded workforce.

So what are the consequences of this amalgamation-fuelled concentration? The causes are complex, but the facts suggest that increased corporate concentration — power, in other words — has contributed to both slower GDP growth and heightened income inequality.

READ MORE: http://www.ipolitics.ca/2015/04/23/why-isnt-the-free-trade-era-delivering-decent-jobs/