Tangled up in its green lifestyle, towering beauty, and mining-headquarters millions, Vancouver has a new and dubious honor: it's the poverty capital of Canada. We have the highest share of our population in the lowest income bracket compared to any other city in Canada.
It’s a reflection of the gap between rich and poor that has been growing faster in Canada than in the U.S. since the mid-1990s — especially in B.C. Within Canada, low income rates rose higher in B.C. than in any province except Alberta in the latest recession, according to a new report from the Conference Board of Canada, which typically focuses on business and productivity issues. Vancouver is one of only three cities in Canada whose low income rates didn’t go down between 2000 and 2009. BC's child poverty rate is still the highest in Canada for 8th year in a row. And Vancouver, by one measure, is the third least affordable city in the world when it comes to housing.
Aside from the obvious moral questions of fairness, high inequality can diminish economic growth if a country is not fully using the skills and capabilities of all its citizens, or if it undermines social cohesion and increases social tensions. The World Economic Forum’s latest assembly of global experts recently listed inequality as one of the five leading challenges facing the world over the next 12-18 months.
Broadcaster Bill Moyers, in a much-clicked interview on Crosscut, is also sounding the alarm on this topic: “Today it’s the staggering inequality between top and bottom that threatens the fabric of our country. One of the greatest of our justices, the late Louis Brandeis, warned that 'You can have wealth concentrated in the hands of a few, or democracy, but you cannot have both.' Now the Supreme Court has opened the floodgates for millionaires and billionaires and giant corporations to pour unlimited amounts of cash into our elections, consolidating their hold on the political process and the corporate state.”
The underlying assumption of every current political leader’s desperate quest for job creation is that a rising economic tide floats all boats. Actually, not. In Canada, the Conference Board study notes that the gap between the real average income of the richest group (top 20 percent) of Canadians and the poorest group (bottom 20 percent) grew from $92,300 to $117,500 in the last three decades. “Thus, while the poor are minimally better off in an absolute sense, they are significantly worse off in a relative sense,” says the board’s report. Median incomes in Canada (half of the people are above, half below, corrected for inflation) have grown by a mere 5.5% in 33 years. The typical Canadian’s economic fortunes have basically flatlined for three decades.
By contrast, the richest 1 percent of the population (average income $405,000) took home almost a third of all the growth in incomes in Canada from 1998-2007, mostly due to lavish corporate compensation packages. To cite just one extreme example: the founder of Shaw Cable, one of Canada’s protected telecom giants, recently retired with a $6-million-a-year pension. In 17 hours he will collect the maximum yearly retirement benefit for a pensioner collecting her Canada Pension Plan ($11,520). In the U.S. today, the wealthiest 1 percent of Americans have a greater collective net worth than the bottom 90 percent.
Explanations range from market forces and globalization to dwindling unionization rates, stagnating minimum wages, and reduced personal and corporate income taxes.
Why does this matter? Is this just the stuff of envy and entitlement?
It matters because income disparity turns out to be a leading indicator of a society’s well-being, more than average income. When it’s out of whack, the vast majority of people, including the financially well-off, suffer. Above a basic level of economic prosperity already achieved in Canada and the U.S., there is no relationship between average income and social well-being, whereas there is a strong relationship between levels of inequality and social well-being.
Nobody proves this more potently than British writers Richard Wilkinson and Kate Pickett of Equalitytrust. Their decades of research make an irresistible argument that most people in any developed country would be better off not by raising GDP, but by reducing the gap between the top and bottom income earners, even with the same level of overall GDP. “Greater equality improves health and life expectancy and dramatically reduces the frequency of a wide range of social problems including violence, incarceration, illiteracy, mental illness, drug addiction and obesity,” they write.
Wilkinson discovered a striking correlation between countries with high inequality and countries with high rates of mental illness (as measured by the World Health Organization). At the “most equal” end of his graph of countries, Japan had an 8 percent level of mental illness. At the “most unequal” end of his graph, the U.K. had a 23 percent rate and the U.S. had a 27 percent rate (only northern industrialized countries were included). Canada is somewhere in the middle.
It isn’t just mental illness that is related to inequality. In more equal societies like the Nordic countries and Japan, people are more likely to trust each other, live longer, and their children are more likely to stay in school. People in more equal societies are less likely to be obese, suffer from mental illness, take illegal drugs, or commit murder. “More equal societies are almost always healthier, happier, and more cohesive,” says Wilkinson.
Wilkinson also looked at states within the U.S. to see if the same effects of inequality emerged. They did. Americans living in more equal states (where there’s a smaller spread between the richest fifth and the poorest fifth) live about four years longer than those living in more unequal states. As well, in more equal states a smaller proportion of children die in infancy, self-rated health is better, and children do better in schools.
Ironically, social mobility, the measure most often celebrated as an available path to prosperity in countries with less equality, is lowest in unequal countries, and highest in the more equal countries. “If you want to pursue the American dream,” says Wilkinson, “go to Norway.”
“Many people worry about what has gone wrong with modern societies without recognising how many of the problems originate in the effects of low social status and status competition which are exacerbated by greater inequality,” he says.
The explanation is not that hard to understand. Humans are social animals who get stressed when at the bottom of hierarchies. Extreme inequality makes life more stressful, even if people at the bottom have way more stuff now than they used to have: TVs, cell phones, nice sneakers. It’s the greater distance from other people with so much more that causes chronic stress and leads to more rapid aging.
Wilkinson points out that almost all violence grows out of people feeling looked down upon, disrespected, or humiliated. He cites five-fold differences in murder rates between different countries related to inequality.
In Detroit, the murder that led to the accidental police killing of a 7-year-old girl started when a 34-year-old man rode a moped to a corner store. He was outraged when a 17-year-old kid smirked at him. So he came back in a Chevy Blazer with two friends and a .357 Magnum and shot him through the chest. “If you fail to avoid high inequality, you will need more prisons and more police,” asserts Wilkinson.
On the positive side, Wilkinson says greater equality benefits everyone — including those at the top. At some point everyone has to leave their gated community and head out into the streets for groceries, schooling, or work. Even those at the top in unequal countries like the U.S., U.K and Portugal live with worse outcomes than the elites in the more equal Nordic countries.
In Vancouver, one intriguing explanation for the recent referendum defeat of the Harmonized Sales Tax (HST) is that lower-income voters were fighting back against the growing income split. A key feature of the revenue-neutral tax was that it would shift some of the tax burden from businesses to consumers.
By all accounts this would stimulate the economy, as evidenced by the implementation of similar taxes in the vast majority of countries in the world. That, in turn, would lead to more jobs for everyone, according to virtually all the economists commenting on it. And the province would get a $1.6-billion thank-you payment from the federal government, which now has to be paid back. So why did the voters reject it?
While many were angry at the ruling B.C. Liberals — who said they wouldn’t implement it, then they did, right after they got re-elected — the votes in Vancouver were exactly related to income levels. The poorer the Vancouver electoral district, the higher the voters’ opposition, while the richer electoral districts were the strongest supporters. That could easily be explained as resentment over income inequality trumping good economic sense. Whatever the reason, the rejection created a huge blow to the province’s economy and a financial nightmare for the provincial finance ministry and every business in B.C.
There are only two ways to fix inequality: stop it at it source (the Japanese model), or redistribute income (as in Sweden), or some combination of the two. Giving union leaders seats on corporate boards is a common practice in some countries that keep compensation disparities in check. In Japan, company directors have been known to take pay cuts themselves to avoid laying off junior employees. B.C.’s new premier Christy Clark’s recent hike in the minimum wage is a step that brings up the lowest end of the compensation scale.
Warren Buffet is the new crown prince of redistribution: he publicly admits that he could get by if he paid the same income tax rates as his secretary (he says he pays lower rates now, since much of his income presumably comes from capital gains). Can anyone really argue with President Obama’s claim that households making over $1 million a year should pay the same share of their income in taxes as middle-class families? At some point, lowering taxes for the top percentile of wage earners does more to create billionaires than it does to create jobs.
Reducing inequality inevitably produces a political dismissal as "social engineering" or "class warfare" to pull down the rich and elevate the undeserving poor. All the more reason, then, to reframe the debate as potentially the most powerful tool to solve a host of economically-crippling problems that burden rich and poor alike.
Especially in Vancouver.
