Markups and Shakedowns

Just a few decades ago, a one-income middle-class family in North America could afford a house, a car, and a university education for their children. It was almost an article of faith that generations would become successively better off. Readers old enough to remember those days might well rub their eyes now. Regular nine-to-five jobs with benefits are increasingly scarce, replaced by the “gig economy” and the “job churn.” Young people, often saddled with student debt, struggle to pay the rent, never mind saving for a house. Real wages have stagnated. Government “austerity” has eroded the social safety net. And though abject poverty has lessened because of various policies and programs, inequality increased to an all-time high last year — while Canada’s collective wealth has also never been higher.

What happened? How did it come to this? And what is to be done?

Alex Himelfarb, once the top public servant in Ottawa — Clerk of the Privy Council and secretary to the cabinet from 2002 to 2006 — has produced a far from dry economic history that seeks to answer such questions. It is a highly readable primer on the theory and practice of neo-liberalism.

Like any broad category, that term can be a bit of a grab bag. In general, however, neo-liberalism is a fundamentalist market ideology that arose in the 1940s in reaction to totalitarian states, their central planning, and the regimentation of their citizens. Himelfarb traces its origin primarily to the work of two Austrian economists, Ludwig von Mises and Friedrich Hayek, and to a network that Hayek initiated in 1947, the Mont Pelerin Society.

Mises assumed that capitalism and personal freedom were inextricably linked; he was a free-market absolutist who believed the state had no role in the economy. Hayek, his protegé, was less of a starry-eyed idealist, though he too thought that the free market was a guarantee of personal liberty and generally opposed intervention by the state on behalf of its citizens. Unlike Mises, Hayek favoured a state powerful enough to protect private property and to ensure the free functioning of the marketplace. He did not oppose minimal welfare measures for destitute people, though his views on that appeared to harden with time. Hayek believed that the “common good,” altruism, and solidarity were atavistic notions — holdovers from kinship societies. Once we had evolved into a “market society,” such values needed to be suppressed, lest they interfere with the free market.

The fundamentally anti-democratic nature of neo-liberalism is critically important: in their not always private moments, early neo-liberals worried about “an excess of democracy.” Voter apathy was a good thing. If workers got too frisky, the scourge could be applied as needed. (Hayek and his student Milton Friedman endorsed Chile’s notorious dictator, Augusto Pinochet.) Neo-liberals stood in stark opposition to the prevailing Western wisdom — informed by Keynesian economics — that governments had a strong mandate to intervene actively in the economy for the betterment of all. For years, they chafed at the costs of the postwar welfare state. Their free-market ideas, unsurprisingly, found traction with the rich and powerful as well as with their political, academic, and media allies.

Then, in the early 1970s, a hitherto unknown phenomenon —“stagflation”— appeared on the scene. An increasingly sluggish economy, one in which unemployment and inflation rose together (supposedly impossible), caused considerable public alarm. The neo-liberals had been waiting in the wings, and soon they began to make their way on stage. Government spending, powerful unions, and easily available money (in the form of low interest rates) were targeted. Margaret Thatcher headed to Downing Street in 1979, and Ronald Reagan moved to the White House in 1981. Both were neo-liberal devotees who wasted little time. Inflation was tamed by a steep rise in interest rates, unions were crushed, and taxes and the social services they supported were slashed. Business was deregulated, and an orgy of privatization ensued. Wealth accumulated at the top, while personal and household debt increased. The two leaders, in Himelfarb’s words, presided over “deindustrialization, stagnant wages and erosion of labour rights, heightened inequality, and all the social pathologies that flow from that.”

Ideological neo-liberalism came to shape politics in numerous countries beyond the United Kingdom and the United States, including here in Canada. Free trade accelerated, regulated by tribunals; in many ways, governments were sidelined. Over time, the neo-liberal world view infiltrated culture and language and our intuitive understanding of how things work. The individual was supreme, traditional Victorian values would uphold civilization, and competition rather than cooperation would define our behaviour. “There is no alternative,” Thatcher’s mantra went, and political parties of all stripes came to believe it.

Any social democratic opposition was diluted to homeopathic levels as “progressive” parties scrambled to embrace “Third Way” politics: cutting ties with labour and taking up the left lane on the neo-liberal highway in the process. They promoted no alternative vision but instead offered poultices for the casualties of the new order, to reduce the agony to a chronic dull pain. It was hardly surprising that in 2013 the New Democrats voted to remove the phrase “democratic socialist principles” from their constitution’s preamble in order to “modernize” it.

In Canada, neo-liberalism began in the provinces, with British Columbia’s austerity program in 1975. Alberta and Saskatchewan followed with deregulation, privatization, tax cuts, and attacks on unions. The Bank of Canada contributed, by raising interest rates to 22.75 percent in 1981 to fight inflation. When Brian Mulroney became prime minister three years later, neo-liberalism was federalized and an era of austerity began. Taxes were lowered for corporations and the wealthy. One-third of existing Crown corporations were privatized. The federal public service came under sustained attack by its own employer. Broad program cuts put Canada at the bottom of the G7 in social spending. Mulroney also fiercely promoted free trade and oversaw the Canada-U.S. Free Trade Agreement, which, in effect, integrated our two economies.

Successive governments entrenched what Mulroney began. Jean Chrétien’s Liberals, elected in 1993, ratified the North American Free Trade Agreement in 1994; the inclusion of Mexico further eroded Canada’s manufacturing sector. The Canadian Centre for Policy Alternatives later suggested that NAFTA’s “investor-state” clause had, as Himelfarb describes it, “a chilling effect on environmental and safety policies in the three countries.” In 1995, the Liberals took a hard right turn, imposing an austerity budget that would have received nods of approval from Thatcher and Reagan. Billions of dollars were cut from health, welfare, education, and housing programs. The public service was cut as well, and privatization continued apace. By 1997, the federal budget was balanced, and Canada had the largest surplus in the G7. Growth took off, but wages stagnated and unemployment remained high. According to Himelfarb, it’s likely that Canada’s improved position was due less to the application of neo-liberal nostrums than to increased foreign demand for our natural resources, as we moved away from manufacturing to an extractive economy.

Himelfarb argues that Chrétien’s legacy was to move Canada’s political “centre” to the right. What followed, after Paul Martin’s relatively short time in office, was a regime of unvarnished neo-liberalism without analgesic: the Stephen Harper Conservatives, who ruled from 2006 to 2015. Harper and his “coalition of theocons and neocons” set to work with a will: A diminished role for government. Deep cuts to taxes, which were already low. A 2 percent reduction in the GST, leading to more austerity as revenue dipped. An expensive and punitive war on crime, including mandatory minimum sentences. Abandoning the Kyoto Accord on climate change. Putting gags on government scientists and abandoning the long-form census. Tearing up a national childcare agreement and the Kelowna Accord, negotiated among federal, provincial, and territorial governments and five national Indigenous organizations. Undermining unions by smothering them in paperwork. And CRA audits of any registered charity that was remotely critical of the new regime, including a group of birdwatchers.

Those were long years, but they came to an end when Justin Trudeau’s Liberals were elected in 2015. In office for nearly a decade, they repealed the anti-union legislation that might not have survived a Charter challenge anyway. Trudeau restored the long-form census and made small changes in Harper’s anti-crime program. He introduced a pro-environment carbon tax. And he legalized marijuana. As Himelfarb sees it, however, Trudeau’s government was “still colouring more or less within the neoliberal lines.”

At present, the richest 1 percent of Canadians hold a quarter of the country’s wealth, and their combined income is about the same as that of the bottom 50 percent. In the COVID‑19 pandemic, which devastated the economy and countless lives, the wealth of Canadian billionaires actually increased. The housing crisis continues. The climate crisis is deepening. There’s a madman in Washington sowing chaos and despair, thrashing about in the ruins that neo‑liberalism has wrought.

Yet neo-liberalism — capitalism gone wild — retains its hold over us in one form or another. Himelfarb’s last chapter, mooting the possibility of an organized grassroots opposition committed to fundamental change, looks like a fond and foolish dream, one suspects even to him. His appeal to our moral imagination — to create a new solidarity dedicated to collective action — seems a little forced. We’ve been there before, with the Leap Manifesto and the Green New Deal.

Himelfarb himself admits that “it’s easier to build a consensus around what makes us angry and what needs destroying than around what a better world might look like and what needs to be built.” Up against the unimaginably vast blocs of capital that have bent the world to their will, the left has dissolved into myriad factions and identity silos. Capital has crushing power; progressives fight over pronouns. Far from fettering neo-liberalism, the state — or what remains of it — is wearing fetters itself. As are we all.

One can read The Big Fix as a coda to Himelfarb’s sobering book. The economist Denise Hearn and the public policy analyst Vass Bednar take a well-documented plunge into modern corporate capitalism, with its record of trickery, deceit, and outright malfeasance in pursuit of profit. Hearn and Bednar also note that capital concentration is at historic levels and continues at a rapid pace, driven by a veritable feeding frenzy of mergers and acquisitions. In what they felicitously call “corporate kayfabe,” an illusion of healthy competition has been constructed, but behind the curtain very few hands are at work.

EssilorLuxottica, for example, a vertically integrated “monopolist,” sells eyewear under 150 different brands worldwide. And it owns the stores that do the selling — 18,000 of them. The markup on glasses for consumers? Up to 1,000 percent. Other companies manufacture their own “private-label products” under numerous names. In 2007, for example, a single manufacturer of pet food had 100 brands. Nearly 70 percent of Dollarama’s online offerings are private-label products, while the thirty exclusive brands owned by Canadian Tire accounted for a third of its revenue in 2018.

There seems to be no trick that large corporations won’t play on consumers. There’s shrinkflation (smaller quantities for the same price), drip pricing (add‑ons to the basic price), skimpflation (degraded product quality), and usage-flation (product labels changed to suggest larger portions of the same contents). There’s self-preferencing in online searches (displaying private-label brands first) and differential pricing (based on acquired data about an individual consumer).

Competition is reduced or eliminated by several bullying strategies. So‑called everything companies expand into many sectors, using profits in one to acquire assets in another. To quote Meta’s Mark Zuckerberg, “It is better to buy than compete.” As Hearn and Bednar argue, “Writing Canada’s competition law regime in the mid-eighties, at the height of the Ronald Reagan and Margaret Thatcher-era neoliberal policy zeitgeist, was a mistake. Our competition policy regime fell prey to the myth of free markets.”

The suggested “big fix” of the book’s title resembles a blue-sky brainstorming session. Hearn and Bednar propose a flurry of remedies: A stronger, more independent and better-funded Competition Bureau with real enforcement capacity. A whole-of-government approach, with a competition czar in the PMO. Several legislative and structural initiatives to open markets up. Persuading the provinces to do more. A citizens’ assembly on competition. Plus a dedicated journalist at every major newspaper to report on market power and competition. It seems a rather scattershot approach, and, even if it somehow all came together, it is hard to see how this fix could manage to stay a step or two ahead of capital — that wily protean beast that has evaded anti-trust measures for more than a century and that neo-liberalism has further entrenched, possibly to the point of no return.