HOW DID WE GET INTO THIS MESS?
By Rod Hiebert, President
Telecommunications Workers Union
Over the last few months, business publications like The Economist
and Business Week have traced the fragility of the world's stock
markets and the increasing threat of deflation to the global oversupply
of cars, computer chips and other manufactured items. The irony is
that we have arrived at this dangerous state of affairs thanks to the
success of free market ideology.
In the drive to improve their competitive positions, each corporation
has been acting as if it operates in isolation, reducing costs and
increasing productivity. The underlying assumption is that by doing
this, they will be able to sell whatever they produce. Ironically, it is
this unrelenting effort which has created the deflationary situation that
business writers are worrying about. Companies are now sitting on
supplies of products that greatly exceed the demand for them.
Corporations faced with an oversupply of inventory reduce their
prices in hopes of selling their products at a lower price than their
competitors. But their competitors are responding the same way.
Both the circumstances of this situation and corporations' reaction to
it are similar to the factors that led the world economy into the Great
Depression of the 1930s.
When I was in grade school in the Okanagan, I remember echoing
my teacher's complaints about anti-competitive fruit marketing boards
to my dad, who worked in a local fruit packing plant. He explained to
me that before there were fruit marketing boards, local farmers
regularly overproduced the same crop. They would then engage in
fierce competition, dropping their prices in hopes that they could
undersell their neighbours.
In this cutthroat environment, farmers were unable to eke out a
decent living, let alone recover their costs of production. None of them
realized that there was only a certain amount of fruit needed and that
people would not would not significantly increase the amount they
consumed no matter how much the price of fruit dropped. I learned
from my dad that the creation of fruit marketing boards stabilized the
industry by preventing overproduction as well as the cutthroat pricing
and destructive competition that went with it.
In the ensuing years, I have watched governments deregulate entire
sectors of the economy, including the airline, trucking and telephone
industries. In each one, prominent players tried to become the most
competitive supplier by lowering their costs. In the process they
generated an oversupply of their products and drove prices down to
the point where their costs exceeded their revenues.
In this environment, companies like Greyhound Air offered bargain
basement prices that seemed too good to be true. They were.
Greyhound Air recently went bankrupt, along with 200 North
American airline companies before it. A host of companies have
suffered a similar fate in other deregulated industries. In this
ruthlessly competitive atmosphere, countless workers have been laid
off, with the attendant effects on their families, communities and local
economies.
Our politicians tell us that the loss of workers' jobs and the upheaval
this causes are part of the sacrifice that is necessary to make their
industries more productive and internationally competitive. They insist
that we will all benefit from lower prices and better service. But income
differentials are larger than at any time since the 1930s, with workers
over 45 and those coming out of school finding it nearly impossible to
get jobs that pay more than the minimum wage. At the same time,
companies are compromising safety standards and ignoring
environmental standards as they go all out to reduce their costs.
All this has resulted from the mindless promotion of competition as
our guiding principle. If our leaders had been paying attention to the
insights offered by people like my father, they would have realized
that they are recreating the conditions which led to the crisis of the
1930s.
Faced with fallout from the "success" of the competitive model,
governments are signing deals like the U.S.-Canada Free Trade
Agreement and N.A.F.T.A. which weaken their ability to control
corporate behaviour. Now Ottawa wants to go even further by signing
the Multilateral Agreement on Investment, which will enshrine
deregulation in an international level trade agreement. Under the
prevailing circumstances, a further extension of free trade could turn
the current economic crisis into a world wide depression, as countries
compete against each other in an insane race to the bottom.
It's time to acknowledge a simple fact: unregulated competition and
uncontrolled market forces will not build the kind of society we want to
live in. If we don't admit this and start acting accordingly, Canadians
may be forced to relive the disaster of the 1930s before they can start
to deal rationally with our economic problems.
