rabble.ca Canadian federal election blog

Why corporations should support government spending

By Murray Dobbin

The final two weeks of the election are all about the economy as Canadians watch the once all-powerful US empire falter and threaten to collapse. But even after the release of his campaign platform, Stephen Harper has revealed that he is unwilling to divert at all from the path of free market fundamentalism. What may commentators are referring to as the end of the Washington Consensus - the new elite consensus declared in the late 1970s - Harper describes as “storm clouds” or a simple “drop in the stock market.” Canada is facing a deep and lasting recession yet Harper’s fundamentalism does not allow him to even consider deficit spending as a countervail to global recession and declining exports.

Many expected Harper to change course but this man is, in Margaret Thatcher’s words, “not for turning.” He barely cracked the piggy bank - promising $8.7 billion over four years - that’s $2 billion a year in addition to the current $200 billion federal budget or about a 1% economic stimulus. Revealing just how repugnant he finds this kind of spending he has offered a paltry $75 million venture capital fund - presumably to help fund innovation. Much of his economic stimulus involves more tax cuts, not spending.

Of course just reversing the obscene corporate tax cuts (and while at it, the cuts for the wealthy since 2000) would make deficits unnecessary. But the deficit hysteria campaign of the late 1980s and early ’90s so demonized deficit spending that virtually no party leader will even admit considering a deficit in any circumstances. Yet deficit spending worked for decades and would work again if any government had the courage to use them. Studies have shown consistently that direct government spending - especially transfer payments - are better at stimulating the economy during a recession than are tax cuts - especially high-end tax cuts. Tax cuts only work well if people are earning taxable salaries and spending money already.

And it isn’t just individuals who benefit from such spending. I came across an old - 1985 - study recently that shows just how much the corporate sector relies on government spending. The study, called “Government spending: It’s a boon, not a bane, for the private sector” by David Robertson, examined total government spending in1983 - $183 billion. The amount of money spent directly on goods and services from the private sector amounted to a huge $68 billion.

In addition, the payroll of all governments was $59 billion, most of which was spent in the private economy as well - ditto the $50 billion distributed through UI, social assistance and pensions. Government spending accounted for about 12% of all private sector jobs.

Some industrial sectors had a huge dependency on government contracts: in the beverage industry - 30.4% of sales were to government; electrical industrial equipment - 39.8%; redimix concrete - 48.1%; shipbuilding and repair - 20.2%; publishing and printing - 21.6%; petroleum products - 17.1%. In total, 28 industrial sectors depended on government spending for over 10% of their total sales.

To my knowledge no one has done a similar analysis since 1985. While total government spending as a percentage of Gross Domestic Product has declined somewhat since then, the private sector still depends on government spending for a big part of its total sales and profits.