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Neoliberalism’s Legacy: A Gaping Hole in Canada’s Social Safety Net

Tuesday, February 10th, 2009

There’s a hole in Canada’s social safety net and the evidence is all around us: from the homeless on our streets to the growing number of our fellow citizens who rely on food banks for their daily sustenance. The hole was made by successive governments whose mantra of paying down the debt and controlling inflation at any and all costs has put our country in a precarious position as we slide further into economic despair.

It didn’t have to be this way. The Great Depression highlighted the need for a stronger social safety net. In the post-war years, countries in the industrialized world set about building a welfare state and implementing a regime of social citizenship. The idea of social citizenship and the social rights it entailed, as British sociologist T.H. Marshall so eloquently theorized, was necessary for the fulfillment of civil and political rights. For Marshall, without a guarantee of the basic necessities of life and protection against the vicissitudes of the market, civil and political rights could not be exercised to their fullest extent and citizenship thus remained incomplete. Post-war legislation, from public pensions and social housing, minimum wages to welfare, guaranteed citizens the right to retire in a state of dignity, the right to shelter, and the right to work at a decent wage and have access to material support from the state when unemployed.

There have always been exclusions and silences in Canada’s regime of social rights. Aboriginal people, immigrants, and other racialized groups could not enjoy the benefits of social citizenship to the same extent as others. And prior to the struggles waged by the feminist movement in the 1960s and 70s, women primarily had access to the social wage through their male-breadwinner husband.

But despite these limitations, social citizenship was widely recognized by states and citizenry alike as a legitimate and worthwhile ideal. As the economic clouds of the 1970s formed and governments turned their attention to fighting inflation, social citizenship lost favour among ruling elites. In the era of neoliberalism, where governments are concerned with rolling back the state and allowing the market to work its “magic” for the well being of “all”, social rights fell victim to successive cutbacks in government expenditure and an ideology of individualism. Social policy became synonymous with, and subsumed under, employment policy: The goal of government was not to provide protection from the vagaries of the market, but to put people to work so they could protect themselves. The social safety net became a trampoline, bouncing those who had fallen on hard times and had become reliant on government support back into jobs, no matter what their wages or working conditions.

The impact has been devastating. Not only do we see rising inequality and poverty, the growth of the working poor and the homeless, but the economy’s ability to recover from economic downturns has been severely hampered by the withering away of what economists call the automatic stabilizer. Typically, as the economy enters a downturn, government tax receipts fall, expenditures on income supports rise (as more people are laid off) and the government likely runs a deficit (assuming it make no cuts in expenditures). The automatic stabilizer refers to that increase in government expenditure on income supports (such as welfare and EI) that occurs in an economic downturn and thereby props up aggregate demand (people’s ability and willingness to buy goods and services) and in theory, eases out the recession. Yet the automatic stabilizer loses its impact as the government dismantles the welfare state and undermines social citizenship.

Take the case of Employment Insurance. What was once a right has become a luxury for the few, as millions of workers facing unemployment during this crisis will not be able to access EI and instead must rely on that program of last resort, welfare or social assistance, which has been severely undermined by cutbacks and downloading. Currently, only 54 per cent of the unemployed are eligible for EI benefits with 41 per cent actually receiving them. In an effort to make our labour market conform to the neoliberal mantra of “flexibility” and “competitiveness”, these reforms can have the perverse impact of drawing out recessions over a longer period of time.

As the economic crisis has so devastatingly demonstrated, neoliberalism as a financial model has failed. Deregulation of financial markets and a skewed distribution of the economic surplus has created a series of speculative bubbles, from dot-com to real estate, that have done little to promote sustainable economic growth and have left markets floundering in their wake. As a social model, neoliberalism cut a hole in the post-war safety net, weakening the welfare state and the social protections and regime of citizenship it entailed. Living through boom times, although evidence of this hole was apparent amongst society’s most marginalized, buoyant markets and consumer credit meant less people fell back on the safety net. For many, the size of the hole was masked. The markets are no longer buoyant and consumer credit is drying up. As the economy plunges into a deep recession and unemployment grows, if government’s at all levels don’t act, we are about to see how big that hole really is.

Published on, Feb 10 2009

The Economic Crisis is an Urban Crisis

Wednesday, November 12th, 2008

Marcus is my neighbour in the Bedford-Stuyvesant district of Brooklyn, New York. In past decades, Bed-Stuy, as it’s known to New Yorkers, became a symbol of urban decline. Drug dealing was brazenly out in the open and shootouts between rival gangs over territory were common throughout the 1980s and early 1990s. Marcus was involved in what he calls “the street-corner economy”. Imprisoned for a few years, he recently returned to Bed-Stuy looking for work. Yet many of New York’s inner-city neighbourhoods have experienced unemployment rates hovering around 20%, double that of the city’s overall rate, and even in times of strong economic growth. Now as the economy slips into recession, work is even harder to come by. “I never got jobs, ‘cause employers would look at my criminal record,” Marcus tells me, “but now, there just isn’t anybody hiring”. He has found some work guarding a boarded up house for a local property developer and is paid $3 an hour under-the-table. Without much of a social safety net to cushion the impact of poverty and joblessness, Marcus is again looking to “alternative survival methods” to get by.

Mayor Rudolph Giuliani was praised for New York’s falling crime rates during his administration’s tenure of 1994 to 2001. Yet the factors combining to ‘clean-up’ New York included a recovering economy in the mid to late 90s, bouncing back from the crushing recession experienced in the earlier half of that decade, paired with a particular neo-conservative approach to social inequality. Bed-Stuy is spotted with what criminal justice experts have come to call “million-dollar blocks”. These blocks get there name from the fact that so many of their residents have been sent to state prison that the total cost of their annual incarceration exceeds $1 million. “Million-dollar blocks” are concentrated in the poorest neighbourhoods of the city and given the racialization of poverty in North American urban centers, such neighbourhoods are predominantly African-American and Latino. As Giuliani slashed welfare rates, cut access to affordable housing, and pumped up police budgets, his strategy for dealing with poverty and the poor was punitive.

All this should lead policy-makers to some sobering analysis of the current economic crisis and its implications for cities such as Toronto. The economic crisis is an urban crisis and governments at all levels with have a choice of directions to take for dealing with the social fallout that the crisis entails. The Giuliani approach is one direction. Those concerned with social justice, must establish an alternative program.

The United Nations has weighed-in on the issue in an important report released November 4th, largely ignored by the media with the U.S. presidential election dominating public discourse. The report, entitled State of the World’s cities 2008-2009: Harmonious Cities was issued by the UN’s urban affairs agency, UN-Habitat. In sum, the report stated that we live in a historic moment with the number of people living in urban areas for the first time in human history exceeding those dwelling in the country-side; in this, the fate of cities and the fate of humanity are increasingly intertwined. But the report also made some disturbing conclusions for North American cities. It highlighted the racialized inequality in Canadian and American urban centers and noted, “High levels of inequality can lead to negative social, economic and political consequences that have a destabilising effect on societies…[They] create social and political fractures that can develop into social unrest and insecurity.” Summarizing the report’s findings, the head of UN-Habitat had this to say, “It is clear that social tension comes from inequality. The trickledown theory [that wealth starts with the rich] has not delivered. Inequality is not good for anybody.”

The report reinforced decades of urban research. Ten years ago American’s most recognized expert on urban inequality, and one-time advisor to Bill Clinton, Harvard professor William Julius Wilson concluded in his book When Work Disappears: The World of the Urban Poor, “Crime, family dissolution, welfare, and low levels of social organization are fundamentally the consequence of the disappearance of work”; countering conservative claims that the so-called pathologies of the poor were the cause of poverty, not the consequences of it. Wilson called for a public works program similar to that launched during the Great Depression and other policy measures to reduce urban inequality. As we enter an economic downturn which may last for some years, the conclusions of experts such as Wilson and UN-Habitat deserve some reflection.

The current crisis could have been avoided. It’s not simply “subprime mortgages” or “debt-swaps” at the heart of this financial mess; it’s an economic model, that of neoliberalism and its ‘trickle-down’ assumptions. As real wages have been relatively stagnant for workers since the 1970s and productivity increasing, big business has recorded record profits. While workers have been left to maintain their standard of living by taking on more household debt, much of these record profits have been pumped into the ‘paper’ economy of casino capitalism where the world’s financiers, hedge fund operators and mutual fund magicians have looked to create new wealth by speculating on a range of financial assets. This has led to a series of speculative bubbles, from dot-com to real estate, of which the latest crisis is merely the most recent manifestation of a reoccurring phenomenon under neoliberalism. This wealth could have been redistributed to working people who spend money in the ‘real’ economy of goods and services and thus fuel economic growth, or to governments who could engage in the massive projects necessary to rebuild crumbling urban infrastructures and bring our cities into the 21st century.

Alas, this did not happen. Government surpluses were largely squandered on corporate tax cuts. In this context, the so-called New Deal for cities takes on new meaning. The New Deal crafted by U.S. president Franklin Delano Roosevelt in the 1930s, under intense pressure from the labour movement, saved the economic system from the ravages of the worst crisis it had experienced. That New Deal entailed a redistribution of wealth to working people, massive investment in the public sector, and guaranteed the rights of workers to organize for a share of the economic surplus. Cities became central to the New Deal, undergoing modernization and renewal, and thus stabilizing capitalism through urbanization. Today, the needs of cities and those who toil in them must be pivotal in the reconstruction of our economy along more just and egalitarian lines. As the UN report makes clear, the consequences of ignoring urban inequality are devastating. And the Giuliani approach doesn’t equal less government spending, just spending on police and prisons, not social programs and affordable housing.

As for the average family that works more hours for less pay, accumulates record amounts of household debt, and sees public services decline for lack of investment, the periodization of this economic crisis to the last year is a bit of an insult. When I asked Marcus’ neighbour June, a New York City transit worker facing layoffs, what she thinks of these economic times, she replied, “We’ve been in crisis for some time now; I don’t know where y’all have been.”

Published on , Nov 2008