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Canadians Need to Replace the Debt Economy With a Living Wage

Canada’s income supports helped avoid mass insolvencies during the pandemic, but widespread indebtedness continues to prop up the country’s ailing economy. Workers must fight to replace easy credit with living wages.

If the golden age of capitalism was “wage-driven,” the neoliberal period has been “debt-driven” — via credit cards, student loans, auto loans, and lower-rate personal lines of credit for balance transfers. (Dylan Gillis / Unsplash)

Near the beginning of the pandemic, the Canadian economy — and the workers on which it depends — experienced a quiet crisis. For decades, mountains of private debt had been building up while the country’s economy ticked on. Not just debt caused by credit-fueled consumer spending, but corporate and private debt too have amassed as a result of Canada’s rapacious housing market. In the spring of 2019, the costs of servicing these debts hit an all-time high.

Working-class renters have suffered most acutely. As a TD Bank report notes, insolvencies took off in 2016 and reached worrying levels by 2019, with working-class renters representing the bulk of the defaults. Almost 90 percent of households struggling financially carried credit card debt with a “median balance of nearly $14,000.”

The social supports implemented as a firewall against the most damaging effects of the COVID-19 pandemic brought a brief reprieve. With emergency lockdowns and income supports in place, workers suddenly had the chance — for the first time in a long time — to deleverage. In 2020, an estimated third of COVID-19-support benefits went to debt repayment. Subsequently, insolvencies and credit card balances decreased dramatically.

This story of relief, of course, remains layered: Essential workers without paid sick days — or who saw their hours reduced — lost pay; vicious eviction fights raged in Canada’s cities; and some workers were forced to rely on predatory loan companies to pay for essentials.

The story of 2020 was one of uneven reprieve for workers, but 2021 was gloomier still. The government support’s intervention into working-class finances ultimately fell short of the radical retooling necessary for long-term transformation. In fact, many of the conditions that caused indebtedness remain firmly in place. The private sector is, as always, more interested in its own profit than in creating jobs and raising wages. In lieu of a sufficient safety net, debt will remain crucial in papering over the disjunct between living costs and prevailing wages.

The TD Bank report also notes that “significant deterioration in housing affordability” paired with “persistent income and wealth gaps . . . may pose risks to the financial well-being of low-income and younger households.” Thus far, low interest rates have moderated the effects of the debt crisis. The imminent threat of higher interest rates, however, could result in a major crunch for the working class — and not just because of their indebtedness. If history is any indication, a crash in our speculative, precarious economy would mean disaster for workers.

The aim of working-class politics should be to show that the causes of indebtedness are political rather than personal. Contrary to the teachings of finance gurus and the individual feelings of guilt that debt engenders, mass indebtedness has been a feature, not a bug, of Canada’s economy since the 1980s. It remains essential to the functioning of austerity, the burgeoning wealth of capitalists, and the speculative markets that shape our lives.

The Rise of Debt

Debt is often thought of as a matter of individual responsibility — the result of bad decisions or poor judgement. Or, in the case of student loans or emergency debt, it’s chalked up to being an unfortunate but unavoidable part of life. But it wasn’t always this way. In fact, personal debt became ubiquitous only in the last forty years. And that was no accident.

During the postwar “golden age” of capitalism, high wages in productive sectors and moderate levels of unionization resulted in thirty years of generally stable growth in household incomes. But starting in the late 1970s, capital went on a global offensive, forcing political realignments. As economist Michael Roberts points out, profits began stagnating in the productive sectors in the 1980s — exactly when globalization uncoupled the movement of companies and credit flows from territorial bounds. Companies were free to search for new sectors to plunder and new ways to deliver high returns — with a heightened appetite to increase the rate of exploitation.

Capital increasingly moved into the FIRE sectors — finance, insurance, and real estate — in turn swelling their size and importance. These areas are typically understood by Marxists as speculative and “fictitious” — involving not the production of value-creating goods and services, but rather more abstracted products that live on balance sheets: derivatives, mergers, bonds, equity, stock buybacks, securitized and tradable financial products.

Investors dump hordes of money gambling on financial markets as well as secondary markets for housing and debt — areas that are simultaneously the highest risk and the most remunerative. This logic tracks with capitalists’ fundamental hunger for profit, first and foremost, whether or not its pursuits are productive. As a result, corporations everywhere now carry huge debts — the selfsame debt that is further commodified and traded through financial instruments. A string of defaults would be ruinous, creating a domino effect throughout the entire economy.

The private sector’s unrelenting search for new yields drove the strong interest in property speculation of the early ’00s, creating housing crises throughout the world — with Canada experiencing one of the world’s worst. While wages increased marginally in the last twenty years, the cost of living in Canada has skyrocketed. The North American nation is no outlier.

The twenty-first century has witnessed the ascension of “rentier” capitalism. Under rentier capitalism, according to Public Services International, “corporations gain significant amounts of profit as a consequence of the ownership and control of assets, rather than from innovative, entrepreneurial use of economic resources.” We must understand the increasing prevalence of indebtedness within Canada as part of this broader change in the means through which capitalist firms make profits.

In the “real” economy, companies cracked down hard on workers. Governments across the developed world tore up the postwar “compromise” between unions and the private sector in the 1980s and 1990s, serving labor a series of demoralizing defeats. After reaching a high-water mark in militancy and power in the 1970s, Canadian labor lost major ground in manufacturing, logistics, retail, and the public sector.

Labor’s share of value collapsed, unionization rates fell, and part-time and precarious jobs replaced the decent jobs that more often characterized the postwar era. These shifts disproportionately burdened young, racialized, and women workers and took place alongside a decade of high unemployment, which made it harder for all workers to demand better.

Canada’s halls of power dutifully supported the private sector’s quest for higher profits. Throughout this period, governments of all stripes pursued relentless neoliberal programs. They slashed corporate taxes; tore up regulations; weakened safety nets like employment insurance (EI) and social assistance — and made eligibility for them more difficult — passed union-busting legislation; suppressed the minimum wage; starved public goods like public housing; and cut funding to services like education and transit, leading to tuition hikes and user fees.

These changes pushed workers into a new job market where they had no protections or power to fight for better conditions. In short, the state decimated the very programs and supports that insulate workers from taking on debt.

The profits realized from neoliberal reform (and easy access to credit) have flowed upwards. Instead of investing in productive sectors, creating jobs, or pushing up wages, the gargantuan returns of the neoliberal period have mostly financed stock buybacks and dividend payouts. As Public Services International points out:

Dividends and stock buybacks represented 91 percent of corporate profits in the US between 2004 and 2014 . . . divert[ing] income which could otherwise be used to reinvest in hiring new workers, building new infrastructure or developing better products.

The story is the same in Canada.

Canada’s political class hasn’t just created the optimal conditions for private profiteering — it actively transforms public money into private wealth. The Canada Emergency Wage Subsidy (CEWS), introduced in 2020 to save jobs by publicly subsidizing wages, ended up financing billions in buybacks and dividend payouts. It will likely go down as one of the largest and quickest transfers of public wealth to private coffers in Canadian history.

Meanwhile, the Bank of Canada’s quantitative easing (QE) program — whereby the bank injects new money into the economy by buying long-term securities — publicly finances the “trickle-down” lie, handing money to investors who mostly hoard it anyway. The costs are socialized; the benefits are privatized.

Papering Over the Pain

Facing tepid wage growth on one side and a meager social safety net on the other, workers have been forced into precarious jobs while financing corporate welfare with their taxes. It is understandable that under these conditions many workers have lowered their expectations.

In the postneoliberal era, what has kept workers from total immiseration has been easy access to credit and historically low carrying costs. Without it, rents would go unpaid and groceries unbought. If the golden age of capitalism was “wage-driven,” the neoliberal period has been “debt-driven” — via credit cards, student loans, auto loans, and lower-rate personal lines of credit for balance transfers. (And as with corporate debt, personal debt is a securitized, packaged, tradable financial commodity.) Neoliberal governments would not be able to keep wages, investment, and social protections low while accumulating exorbitant profits were cheap debt not available to workers trying to make ends meet.

Before the effects of COVID-19 prompted the government to provide emergency aid, this system was in big trouble. Record leverage meant more money going to debt servicing costs and higher rates of defaults. The cumulative effect of these defaults was that the economy started to contract. In the eleventh hour, the Canadian Emergency Response Benefit (CERB) intervention steadied the ship. It was a rare moment of redistribution where public money flowed downward — functioning almost as a debt jubilee. But the system that produced mass indebtedness remains wholly intact.

Unless workers see productive investment, higher wages, and better social programs, it likely won’t be long before they have no choice but to pile up more debt. CERB and its successor program, the Canada Recovery Benefit, are dead. In Ontario, the province recently raised the minimum wage of $14.25 by a paltry ten cents. With average rents skyrocketing, paying rent on minimum wage is impossible in most neighborhoods in the province. As of 2019, 97 percent of all neighborhoods in the country were unaffordable to those earning minimum wage.

For now, the credit burden has swung almost entirely over to the higher end of the market: corporations and mortgages. Their debt is a source of significant instability and will likely be the cause of the next crash. Eventually, the bill for all this speculation built on credit — driven up by returns to capital instead of investment in wages, infrastructure, or productive sectors — will come due, and corporations will be unable to service their ballooning debts.

Writing on similar situations in the United States and the UK, Grace Blakeley has noted that:

We are entering a period of zombie capitalism, in which little new debt can be created to drive growth, but there is not enough productive economic activity to pay the old debt off. In this situation, only an extended period of extremely low interest rates can keep the economy ticking over.

Escaping the Debt Trap

The pandemic has created a major opening for labor and the Left to win material improvements. CERB gave innumerable people the opportunity to escape their debt traps with a program rolled out in the span of a week. This experience will likely raise workers’ expectations.

Furthermore, sectoral labor shortages are a signal that workers, now more deleveraged, are fed up with precarious work and crave stability and higher wages — and are willing to hold out for it. Movements for decent work are growing; so too are demands for better protections and higher wages. Ontario’s announcing a minimum wage hike to $15 in January represents an organizing victory won by workers. The Left should look to build on these small victories.

The pandemic has clearly exposed the extent to which the game is rigged. People have not looked kindly on private business bank accounts filling up with billions in public money via CEWS. And the latest spike in the housing market has underscored just how central property speculation has become to the economy.

But global capitalism may be realigning, at least slightly. In the United States, president Joe Biden has signaled a willingness to sign off on large spending packages in an attempt to resolve some of the structural tensions underlying the economy. As Joseph Choonara points out, “Crisis is being deferred and modified in form.” Austerity and orthodox neoliberalism appear to be temporarily out of vogue. This momentary departure from austerity represents a major political opening in the pandemic era.

With emergency income supports gone, socialists need to fight on many fronts: in the workplace and in our communities. Not only do we need to fight for a greater share of wealth, we have to understand and communicate the fact that debt and austerity are no accident, but rather two sides of the same coin. They are the result of the conditions that neoliberal governments have built to ensure maximum returns to capital.

Socialists should fight to seize the profits hoarded by capitalists. We must reroute the corporate welfare embezzled from the commons and use it in productive and beneficial ways: funding public infrastructure programs to build housing, transit, and roads; making Canada’s health care system truly universal by including pharmacare and dental; making postsecondary education free. We must improve and expand the programs that insulate workers from deprivations and false scarcity caused by capitalism. This will mean fighting for unemployment insurance, public housing, and disability support.

The pandemic has made clear what needs to change within Canada’s economy. Debt, ultimately, is a symptom of a system dedicated to speculation and greed. Neoliberalism’s inability to respond adequately to conditions created by the pandemic — which have exacerbated its internal contradictions — presents us with an opportunity.