ROCHON on the IMF and labour market deregulations

LABOUR MARKET DEREGULATIONS NOT WORKING: IMF

See original CBC column here.

Recent — and potentially watershed — International Monetary Fund (IMF) documents have cast doubt on the merits of labour market deregulation of the last three decades, with important consequences for Canada. But will anyone listen?

The last 30 years have not been kind to economic growth and wealth creation.

The economic “successes” of the neo-liberal era, from roughly 1980 to 2007, pale in comparison to the three decades that followed the Second World War with respect to almost every economic variable imaginable.

One of the core arguments of the neo-liberal era, adopted at one time by the IMF and the World Bank, among other institutions, has been a belief in what economists have called labour market flexibility.

Labour market flexibility is aimed largely at making wage settlements more difficult and less generous, labour force reductions easier for the private sector, and labour union participation more difficult.

According to this argument, in a growing competitive global environment, Canadian companies have to remove any inefficiency in the labour market, especially any that could stifle the private sector’s quest for flexibility and profits.

So efforts have taken place over the last three decades to make labour markets more flexible: A push toward term or temporary contracts, a de-emphasis on job security, laws that made participation in unions more voluntary. And the Harper government has been an active and willing participant in this misplaced quest for labour market flexibility.

The private sector labeled labour unions as disruptive and detrimental to their bottom line: Wage gains were too high and unions too powerful, thereby making it too difficult to “restructure” hiring practices to make Canadian companies competitive (a fancy way to say it was difficult to fire people).

In reality, of course, this was an awful idea in terms of economic theory and economic consequence. In terms of building social peace between labour movements and the private sector, it was no good, either. The attack, however, has been carried out largely on the backs of working Canadians. And now we have proof.

In twin reports, the IMF revisits the question of the success of these policies.

In what can only be labeled a gigantic mea culpa, the IMF now claims that these policies have failed — and miserably, at that.

In two reports, the IMF carefully lays out the empirical evidence and it ain’t good.

In one of them, dated March 2015, the IMF argues that the decrease in unionization rates has largely fed the increase in incomes of those at the top.

Subsequently, for its April 2015 edition of the World Economic Output (WEO) report, which featured data from 16 G20 countries, the IMF concludes that there is no evidence that the neo-liberal deregulatory reforms had any positive impact on labour markets and economic growth.

These painful deregulatory policies, often imposed by force, have had no impact on total factor productivity.

It took courage for the IMF to arrive at these conclusions, and it reminds me of John Maynard Keynes, who famously once said, “When the facts change, I change my mind. What do you do, Sir?”

To its credit, the IMF looked at the evidence and admitted they had been wrong.

The IMF reports are just some in a series of recent reports from reputable institutions casting doubt on the whole neo-liberal era. Some of us have been arguing these same issues for years, concluding this era was one colossal failure, not only for the economy as a whole, but also for workers and their families.

In a recent report echoing the IMF findings, the Economic Policy Institute in Washington argued that there is a direct correlation between the decline in unionization rates in the U.S. and the decrease in the share of income going to the middle 60 per cent of working Americans (more or less, the middle class).

Evidence against the panoply of policies imposed on developed and developing countries over the last three decades is growing.

This requires a full rethinking of economics and economic policies, which is already well underway in many countries, led in many instances by students disillusioned with the teaching of economics. For instance, I have just returned from a conference in Vienna hosted by intelligent students looking for better solutions, and attended by over 200 students.

Many political parties in power, however, still refuse to acknowledge these findings, and continue with the same policies that largely contributed to the 2007 crisis.

It’s time we demand an end to policies that work against working Canadians, and in the process, we must demand from our governments better policies that share gains more broadly.

Louis-Philippe Rochon is an associate professor of economics at Laurentian University in Ontario, and the co-editor of the Review of Keynesian Economics.