Free Trade's Haves and Have-Nots

Trade agreements should be one part of economic policy; fighting inequality should be another.

International Trade Minister Ed Fast’s recent speech to the Canadian Chamber of Commerce has drawn criticism for the partisan vitriol it directed toward the NDP. And so it should. Cabinet ministers represent all Canadians, and official speeches on the future of Canada’s international trade policy are not the place to divide and conquer.

However, Fast’s basic argument – that lower trade barriers promote economic growth – is utterly reasonable. And the standard opposition response – that Canadian workers must be protected from the evils of big business – leaves much to be desired. But economic growth alone is not enough to make Canadians prosperous, and it is here that Fast’s attack on New Democrats masks an incompleteness in the Conservative government’s approach to international trade.

It has been more than 20 years since Canada first signed a free-trade agreement with the United States, and few will deny that the Canadian economy has been better for it. In spite of the recent recession, on the whole Canadians are significantly wealthier than they were two decades ago.

But the increased prosperity has not reached everyone. The gap between the rich and the poor in Canada has grown steadily. The Organization for Economic Co-operation and Development recently reported that, among its members, only Germany has seen a greater increase in the overall inequality of household earnings over the last decade and a half.

The situation has become sufficiently troubling that even free-market economists have begun to identify this gap as fiscally dangerous and a threat to Canada’s long-term economic prospects. In other words, the gap is not – as the NDP is prone to suggest – a social problem, an argument that lends itself to an unresolvable ideological debate over whether the responsibility for the solution lies with the government or the individual.

Rather, the growing disparity in earnings between Canada’s rich and poor is largely a result of government policy, and it therefore behooves Ottawa to be a part of the solution.

Fortunately, the government need not look far to find a way to preserve economic growth without exacerbating inequality. A recent Senate report on poverty, housing, and homelessness, co-authored by Conservative Sen. Hugh Segal, offers a number of legitimate recommendations for a way ahead, including the establishment of a basic annual income based on a negative income tax.

The report’s non-partisan analysis is clear: “Poverty costs us all. Poverty expands health-care costs, policing burdens, and diminished educational outcomes. This in turn depresses productivity, labour force flexibility, life spans and economic expansion, and social progress, all of which takes place at huge cost to taxpayers, federal and provincial treasuries, and the robust potential of the Canadian consumer economy.”

The authors argue reasonably that “eradicating poverty and homelessness is not only the humane and decent priority of a civilized democracy, but absolutely essential to a productive and expanding economy benefitting from the strengths and abilities of all its people.”

To summarize, then, we need to promote international trade to increase economic growth. Such growth, however, seems to be initially concentrated in the hands of the few. And, in the long term, increasing inequality is bad for business and for Canadians more generally.

So while Minister Fast is right to push for freer trade with Canada’s partners and allies abroad, in order to best promote and preserve Canada’s national interests, his party must complement the free-trade campaign with a strategy that ensures that Canadians at home are best positioned to benefit from the new wealth that will be created.

This is not a question of workers’ rights or social justice; it’s just good economic policy.

Photo courtesy of Reuters.