Growing Gap

Thinking about Canada's economic crisis, I frequently find myself wondering: "What would Obama do?"

Today, I got his answer to the problem of self-absorbed CEOs who stick one hand out for bailouts (and tax cuts) and use the other to line their pockets with compensation packages that seemingly have no limit.
We know it as a distinctly American problem, but the same trends exist here in Canada.

President Barack Obama's answer: The White House will set a maximum wage for CEOs whose companies are being subsidized by U.S. taxpayers.
"This is America," Obama said. "We don't disparage wealth. But what gets people upset, and rightfully so, is executives being awarded for failure. Especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves."

More than $18 billion in bonuses were paid out to U.S. CEOs in 2008 - yes the very year greed and shortsighted decision-making helped fuel a global market meltdown.

Now that American taxpayers are on the hook for trillion dollar deficits that their grandchildren will still be paying down many years from now, the myth of the Super CEO deserving of grandiose self-reward has come crashing down on Wall Street and may soon make its way to Canada's own Bay Street.

"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste; it's bad strategy, and I will not tolerate it as president," Obama said.

For those whose tendency is to bring out the violins for the embattled CEO, their compensation is capped at healthy $500,000 U.S. To borrow a line from Evita, don't cry for me, Argentina.

Companies receiving U.S. federal aid will also have to publicly disclose all of their perks and luxuries - which is ruffling a few well-preened feathers.
Wells Fargo & Co. received a $25 billion bailout from taxpayers yet had still planned on a lavish Vegas junket for its top employees until the public got wind of it.

"Let's get this straight: These guys are going to Vegas to roll the dice on the taxpayer dime?" said Republican Shelley Moore Capito. "They're tone-deaf. It's outrageous."

This represents a sea change in how we view CEO corporate excess. We are witnessing the beginning of a new era.

As U.S. Treasury Secretary Timothy Geithner put it: "There is a deep sense across this country that those who are not responsible for this crisis are bearing a greater burden than those who were."

It's only a matter of time before we start making the same connections in Canada.

-- Trish Hennessy

The federal government has leaked its 2009 deficit figures: Canada faces a $34 billion deficit this year with more to come.

These deficit numbers imply the federal government’s stimulus package on January 27 may not be big enough and fast enough to adequate protect Canadians from recession.

 “The numbers leaked yesterday point to the fact that the government has already failed the test of delivering an adequate stimulus” says Canadian Centre for Policy Alternatives Senior Economist Marc Lee. “Now Canadians will suffer higher unemployment and more hardship than need be the case.”

Canada is expected to run a $14 billion dollar deficit in 2009 without stimulus.  Yesterday’s leak of a $34 billion deficit suggests a stimulus package of approximately $20 billion or slightly more than 1% of GDP. 

While a $34 billion deficit in 2009/10 sounds large, Canada’s economy is also twice the size it was in the early 1990s.

Once again, Canada is out of step with the rest of the world. 

The Canadian stimulus package of 1% of GDP is only half of the 2% that is being called for by the IMF, the OECD and already tabled by many European governments.  Both the United States and China have significantly exceeded this target.

Of all the countries in the G7, Canada has the lowest debt burden and is the most able to utilize deficit spending. Unfortunately, while we’re the best positioned, our government seems the least inclined to act aggressively to protect its citizens from coming job losses.

The CCPA has released its Alternative Federal Budget (www.policyalternatives.ca), proposing a stimulus approximately twice the size of the implied government one.  It would leave Canada with the lowest debt burden (debt to GDP) ratio in the G7.  It would also create 470,000 jobs and buffer Canadians from the worst of the coming recession.

-- David Macdonald, Alternative Federal Budget coordinator for the Canadian Centre for Policy Alternatives

New, from the St. John's Telegram 

Jeers: to the rich getting richer and the poor getting poorer. A recent study from the Canadian Centre for Policy Alternatives has determined that by the time you got back into the swing of things at work on Jan. 2, the average Canadian CEO will already have made more money this year than you will earn in the next 12 months. According to the report, the top 100 execs in the country raked in more than $10 million apiece in 2007, which is the last full year for which data was available. It seems the economic meltdown only affects those whose pockets aren't lined with gold.

http://www.thetelegram.com/index.cfm?sid=206982&sc=80

Hugh Mackenzie, researcher at the Canadian Centre for Policy Alternatives, gives you the dirt on the growing income gap between Canada's very rich and the rest of us.

By 9:04 a.m. January 2nd Canada's best paid 100 CEOs will have already pocketed what will take Canadians earning the average wage an entire year to earn.

That's right, by the time you boot up your computer and start another new year of work, the top 100 CEOs will have already pocketed the average Canadian wage.

And the party keeps on going, because the top 100 now average a little more than $10 million each in earnings. Some of these CEOs include those who head Canada's big banks - the very banks that received federal government bailout assistance in late 2008.

In 2007, the most recent year of data available for CEO pay, Canada's best paid 100 CEOs broke their own record. They pocketed just over $1 billion in pay, representing a 22% increase over the previous year's pay.

Average Canadian earnings rose by only 3.2% -- the best increase in the past five years, but a small fraction of the CEOs' pay hike; one that barely keeps up with inflation.
Every year, when the Canadian Centre for Policy Alternatives releases these numbers, media pundits write columns crowing about the importance of CEOs.
They expound on how highly paid CEOs are like a gift that keeps on giving; that their innovative leadership keeps Canada's economy thriving.

Curiously, there is no mention of Canadian workers' rising productivity levels and education credentials, no reporting of the increase in Canadians' working hours, or of the stagnant wages of Canada's middle class.

It is all about the CEO.

The tides are beginning to change. After a year of massive profit losses and dramatic company collapses south of the border, the wisdom of high paid CEOs has finally come under heavy public criticism.

In the U.S. especially, the conversation has shifted from revering CEOs for their own sake to being critical of a system of pay that gives CEOs incentive to take big risks without worrying about the fallout. In 2008 we saw the results of that kind of risk taking in the U.S. - it's affecting economies across the globe.

The question is, will we take this moment to find a better balance between what CEOs are paid compared to the rest of us?

That's the real challenge, because the current system of CEO compensation is not only distorting the way our economy works, and it's also becoming a major driver of income inequality in Canada.

Read the full report at http://www.growinggap.ca/research 

-- Trish Hennessy