income inequality and investment: what lies ahead? social investment organization conference...
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Income Inequality and Investment:What Lies Ahead?
Social Investment Organization ConferenceVancouver, B.C.June 17, 2013
Armine YalnizyanSenior Economist, CCPA
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Overview of Comments
• Globalization and growth: the source of growth is the middle class
• The next 30 years won’t be like the last 30 years – Focus on attracting labour, not just attracting capital
• Income inequality trends in Canada and their impact on future growth of investment funds
• The challenge of slow growth for investors: short-term gains trigger long-term pains
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Who’s buying? A growing middle class.....but not at home
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Growth in Global FDI Inflows (Canada 18th largest recipient)
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Growing Number of People on the Move – 214 million in 2010
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Canada – the UN in Action?
Statistics Canada:
“Canada accepts proportionately more immigrants and refugees than any other country.”
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Almost 1 million people arrived in Canada in 2011. No national housing/transit plan.
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FCM: “By 2015, 100 percent of Canada’s labour growth will come from new immigrants.”
The Rise of the Temps
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Labour’s Share of Income In DeclineGood news? (higher profit share)
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Within smaller labour share of GDP:Greater inequality, and rising income gap
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1/3 of all income gains going to top 1% - primary source of investment funds
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Stuck in the middle: 35 years, no gains
More educated, economy 2.5 times as big
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Shrinking Middle Income Opportunities
(affects consumption, savings, debt)
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Growing Intergenerational Inequality, Shrinking Future Investor Base
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A Temporary Recovery? Or The New Normal?
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Inequality Bites
• Shorter spells of growth (more volatility), less growth (IMF)
• Less mobility/opportunity (Corak)• Squandered potential, underdeveloped capacity
(Conference Board of Canada)• Trade-off between growing middle class
elsewhere and shrinking existing middle class? (World Bank)
• Eroded legitimacy of system (Stiglitz, Freeland)
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Short-term versus Long-term challenges• Slow growth? Boost profit by lowering costs
(lower wages)BUT
• If I can’t buy, you can’t sell Inadequate aggregate demand, slower growth
• Lower wages means less saving, smaller base for investments down the road....or dramatically shifting geo-political realities
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Recalibrate Investor Expectations? The Challenges
• Slow growth (global crisis then demographic shift) increases pressure to lower costs and/or grow market share elsewhere.
• Pressure on public finance – can only avoid becoming an economic backwater if invest in infrastructure to attract capital and labour
• Growing reliance on investment income with increasing retiree population. (Inflation potential?)