Canadian Commentary

Taking care of Business:
The NDP and the Free Market

January 2001

This article first appeared in Pundit Magazine (www.punditmag.com) in September 2000, before the 2000 federal election had been called. The poor results of the NDP's single-issue campaign in that election show just how urgently the NDP needs to develop new and original policies.

You don't have to be nice to business just because you accept the necessity of the free market.

This is the lesson that Canada's NDP has been unable to grasp as it struggles to make itself relevant to Canadians. The federal NDP has been floundering in the face of the current widespread acceptance, not only by the media but also by the majority of voters, that the free market is the most effective vehicle for economic growth, even if it results in some unpleasant consequences.

In trying to deal with this situation, the NDP has oscillated between two equally pointless solutions.

On the one hand, former Ontario NDP premier Bob Rae has been advocating a position which basically involves caving in to capitalism. Those who take this approach believe that the only route left to social democrats is to let the market run its course, and then try to patch up the resulting wounds.

This uninspiring "Third Way" approach may have been effective in Europe, where centrist parties are generally weak and can be pushed aside by better-organized parties of the left; but it is hopeless in Canada, where it merely replicates the position of the dominant Liberal party.

The other solution is typified by Buzz Hargrove, leader of the Canadian Auto Workers union, who advocates a continuing state of denial. He and his followers still assert that the private sector is fundamentally bad, and that governments should take a dominant role in the national economy.

This government-oriented approach never had much appeal to voters in the first place, and has even less now, after various experiments in government-led industrial policy proved to be ineffectual and sometimes wasteful. Most voters have come to the conclusion that the Hargrove approach would do more harm than good to the economy, and therefore to themselves.

While most New Democrats are not happy with either abandoning their principles entirely, or advocating discredited policies, they have been unable to find any kind of coherent economic policy position that both accepts the necessity of the private sector and maintains any kind of truly socialist outlook or goals.

As a result, the NDP has shied away from propounding a coherent economic platform, preferring to focus on social issues such as health care, where they feel on firmer ground and are more in sympathy with voters. The strategy is not working, however, because however much voters are concerned about health care, they still want to be sure that any potential government will know what it is doing on economic matters.

Yet a potential solution lies within the free market itself. In principle, the free market is both democratic and redistributive. Competition should theoretically ensure that consumers have the widest possible choices for the lowest possible prices, and that everyone has the opportunity to become a producer if they have skills and ideas that match a need.

The problem, as with all theories, is that in practice the free market is nothing of the sort. What begins as a free market quickly degenerates into a complacent oligarchy, as companies that come to dominate any given sector use their weight to prevent new enterprises from challenging them.

It requires a firm, active, impartial government to ensure that the market stays free - and that is a rare commodity indeed. Canadian governments have, traditionally, been on close terms with big business, and as a result the Canadian private sector has tended to be a cozy, government-supported private club.

If, rather than denying the free market, the NDP instead advocated a more active enforcement of free market principles - competition, ownership rights, consumer choice and the separation of government and business - it would actually result in a radical revamping of the Canadian economy in favour of workers, individual shareholders, and consumers. Even as it energized the Canadian economy, it would redistribute power and wealth to the Canadian people while scaring the daylights out of Canadian business - surely the primary goals of a socialist government.

Competition

Let's start with competition. Most federally regulated services in Canada are dominated by private monopolies or oligarchies. This process has only accelerated under the Liberal government, which has overseen the swallowing of Canadian Airlines by Air Canada to form a near-complete monopoly over Canadian air travel, and which will, if re-elected, likely allow the banks to merge into an even smaller number of dominant players.

The NDP could make a popular start at an economic policy simply by promising to ensure true competition in Canadian business. Once upon a time, the NDP would have advocated nationalizing Air Canada as a monopoly. It could demonstrate its successful adaptation to market economics by, instead, promising to break Air Canada up into at least two viable private companies. That should, in one swoop, get the vote of every Canadian who has flown Air Canada in the last six months.

The NDP could follow up by promising to prevent any mergers of Canadian banks, and to restore the 10% ownership rule which prevented any single foreign company from taking control (the Liberals plan to boost it to 20%, enough to allow two foreign owners to gain effective control). Here is an example where the NDP's unsympathetic attitudes towards business would be an advantage - only the NDP can credibly claim that it would resist the pressure exerted by the banks.

Ownership

The principle that owners should control their property is fundamental to capitalism, but it is largely ignored in Canadian business, where the private sector is dominated by a coterie of managers, while the actual owners - the shareholders - are restricted in exercising their right of ownership by various procedural and regulatory strategies.

This situation should be of particular concern to the NDP because, over the last thirty years, a basic goal of socialism has started to be realized - the workers are becoming owners of the means of production. Through a massive increase in the amount of capital controlled by wage-earners' pension funds, supplemented by an increase in direct share ownership, Canadian workers own a significant chunk of the Canadian economy.

Yet wage-earning owners are effectively powerless in exercising the rights that should go along with that ownership. Simply giving them greater control over the assets they actually own would go farther towards achieving socialist goals of redistributing economic power than any amount of direct government action.

The NDP could start by becoming advocates for shareholder rights. They could promise to change corporate regulations to ensure that shareholders had much greater control over their company's board of directors. This approach would include provisions to ensure that a broad-based majority of shareholders was able to exert better authority over their company, and provisions to ensure that minority shareholders were able to elect their representative onto a board of directors even in the face of a hostile majority shareholder. Both of these measures would result in much better corporate governance.

On a broader scale, the NDP could promise to ensure that employees were able to exert effective control over their own pension funds. The most active and effective pension funds are the rare ones that are under the complete control of the employees they serve, such as the Ontario teachers' fund; but many funds are effectively controlled by the corporation or government for which the employees work, leading to apathetic management that does not necessarily serve the workers, and is open to abuse.

If all employees were given complete control of their pension funds, and the funds were allowed to be active owners, Canadian workers would suddenly exert a great deal of power over the Canadian economy. Furthermore, they could be given the right to establish ethical investment guidelines for their pension funds - after all, it is their money.

This power could result in a very positive balance of incentives, between ethical investing on one hand, and the necessity to generate a good rate of return on the other. It could result in pension funds pushing innovative solutions in areas such as labour and environmental practices - solutions that were responsible and just, but did not detract from the bottom line.

Not only would these provisions achieve the socialist goals of redistributing economic power, they would also achieve the free market goal of shaking up the complacent Canadian private sector and creating more efficient companies that were responsive to their owners.

Separation of Government and Business

Another fundamental principle of the free market is the separation of government and business. The tradition of left-leaning governments interfering with and trying to direct private enterprise has largely been abandoned in Canada. Instead of separating business and government, however, the nature of their interaction has simply been reversed. Thanks to the new enthusiasm for "public-private partnership", it is now business that interferes with government decision-making.

A prime example lies in the awarding of government research grants. The government now gives preferential treatment to research proposals that are "partnerships" bolstered by other sources of funding - inevitably, from private corporations. Effectively, this means that grants are given to research that is useful to specific businesses, rather than useful to the greater public good. Not only does this process skew the kind of research that the government supports, it also effectively subsidizes private enterprises which should be paying for their own research.

If the NDP promised to enforce a true separation of government and business, they could redirect taxpayer-funded research to projects that were genuinely useful to the public, including those which might offer cheaper, openly available alternatives to corporate products. Once again, free market principles and populist outcomes would go hand in hand.

Consumer Choice

Finally, a fundamental ideal of the free market is consumer choice - the buyer's opportunity to choose between a variety of products according to whatever criteria s/he desires. This simple principle could form the basis of a radical shift in Canada's international trade policy.

The World Trade Organization portrays itself as a facilitator of the "free market", but it is in fact nothing of the sort. Rather, it is a closed, bureaucratic organization designed to further the interests of large corporations by enabling them to sell mass-market products at the expense of small, localized competition. It denies consumer choice by reducing consumers access to niche products.

If the NDP were to make consumer choice the cornerstone of its international trade policy, they would threaten a radical, populist upheaval in Canada's position on the issue. Pushing consumer choice would include, for instance, allowing the labeling of genetically modified produce, so that consumers would be able to choose what they wanted to eat. The corporations who create such produce would then have to persuade consumers of their safety and merits, as with any new product, rather than having them forced on consumers under the protection of the WTO.

Conclusion

Each of these principles - competition, ownership, separation of government and business, consumer choice - is a specifically free-market principle. Yet, an effective enforcement of policies based on these principles would radically shake up the business sector, and redistribute wealth and power from a narrow elite to the greater mass of workers and consumers, which is the basic purpose of a party of the left. In other words, the NDP does not have to abandon either its ideals, or its radicalism, by accepting the usefulness of the free market.

Furthermore, it can finally translate its ideals into concepts and policies that the majority of Canadians can understand and sympathise with, a task it has never previously accomplished. Canadians resent their complacent, monopolistic corporations, such as the big banks and Air Canada, but don't have an effective way to direct this anger. Most Canadians contribute to a pension fund over which they have little control, and all Canadians are consumers who want to know about the foods they eat. The strategies outlined above would appeal strongly to wage-earning Canadians by benefiting them directly in ways they can understand.

The NDP does not have to shy away from the free market, and from economic policy in general. It is possible for the NDP to develop a viable yet radical economic policy that accepts the free market, while redistributing wealth and power and challenging the Canadian private sector in its own terms. With a little imagination, New Democrats can have their free market and beat it too.

January 2001

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Copyright Dylan Reid

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