As we predicted, the global economic crisis has hit Canada. For months, finance ministers and bankers have tried to reassure Canadians that the housing bubble, the credit crisis, and sub-prime mortgages were all foreign problems that could not apply to Canada. “The foundations of the Canadian economy are sound,” was the mantra that they kept repeating.
It is funny that as soon as a crisis hits, two decades of spreading the gospel of globalization are immediately thrown out the window – suddenly, to the bosses at least, the Canadian economy is completely divorced from the rest of the world economy. It was only in late July that federal Finance Minister Jim Flaherty finally admitted what we had known all along – that Canada was not going to be immune to an economic crisis which is affecting nearly every single country around the world.
To the chagrin of Stephen Harper and Stéphane Dion, the global economic crisis came to dominate the federal election campaign. It is becoming rapidly apparent that the finance crisis is not going to be limited to simply one or two sectors of Canada (like the ongoing manufacturing crisis); instead, unless you are already homeless, this is going to affect every single working person across the country.
The beleaguered manufacturing sector is going to suffer even greater losses, especially as the recession deepens in the United States. The vast majority of Canadian manufacturing exports are to the United States and demand for manufactured goods are plummeting south of the border. At the time of writing, it is highly likely that General Motors and Chrysler will be consolidated, either through a merger or with GM buying Chrysler out. Such a merger would be catastrophic for Canadian and American auto workers who have already had to suffer through massive job losses over the past few years (with another 1500 workers due to lose their jobs at the Chrysler truck plant in St. Thomas, ON).
Although the manufacturing sector, particularly in Ontario and Québec, has been in crisis, the rest of the Canadian economy has been relatively healthy – until now. This has largely been based upon the historically high price of oil and other commodities. However, as the full extent of the economic crisis is realized, these prices have plummeted. Oil, which had been trading as high as $147 per barrel two months ago, has dropped to under $70. In Newfoundland, the treasury department has already warned Newfoundlanders that cuts may need to be implemented if the price of oil drops further and income into the provincial treasury dries up. The effect may be even greater in Alberta, where much of the development of the tar sands is conditional on the price of oil on the world market. Because extraction of oil from the tar sands is very difficult, it is only profitable for oil companies if the price of oil remains above a certain level. In some of the tar sand projects, oil companies will abandon drilling if the price of oil drops to below $50-60 a barrel.
Although the Canadian banking sector was not as immersed in the sub-prime mortgage fiasco as the banks in the United States, the banks in Canada are far from healthy. The Canadian banks have a very large presence in the US and as such, probably played a part in buying up these sub-prime mortgages (or at least have money invested in American banks that in turn have invested in sub-prime). CIBC reported a loss of over $4 billion last year, largely based on speculation in sub-prime mortgages – out of the ordinary when we’re used to seeing all of the Canadian banks reporting multi-billion profits every year. In the midst of the election campaign, the Conservative government very quietly handed over $25 billion to the major banks – certainly a drop in the bucket compared to the $800 billion bailout in the US but belying the assertion that the Canadian banks are in a healthy state. At the time of writing, the Bank of Canada had just dropped the prime lending rate to 2.25%, to half of what it was exactly a year ago. However, the major banks have been refusing to follow the Bank of Canada’s lead and continue to tighten up their lending policies for fear of losing more money. Businesses are going to find it harder to get capital that they need, almost certainly leading to greater job losses across the country.
The stock market crashes around the world are going to impact workers profoundly, too. Some idiots on the Left were celebrating the fall on the Toronto stock exchange, not realizing that at the end of the day it is the workers who feel the brunt of these losses. In one trading day, Potash Corp. lost a full 25% of its value on the TSX, especially dire considering that it’s estimated that 95% of all Canadian pension and mutual funds invest in Potash Corp. Pension funds, including the CPP, have lost billions of dollars in their value over the last month.
What is astonishing about all of this grim economic news is that the economic crisis, at the moment, could be a lot more severe in Canada, especially within the banking sector. Even though the hardship for working class people has been severe for the last few years, if nothing is done to resolve the crisis, the situation could become much worse. Unfortunately, as the federal election proved, none of the party leaders had any real solution to the economic crisis and voters rewarded the leaders with the largest abstention in Canadian history.
For years, workers have been told that nationalization of the banks and leading industry can never happen. Well, around the world, we’re now seeing governments effectively nationalizing banks and financial institutions, including AIG by the US government (the 18th largest company in the world), and ING by the Dutch government (the 9th largest company in the world). However, these nationalizations are being done for the benefit of the bosses and not for the workers. Not one penny of all of this government money is going to go into the pockets of workers. Instead, because of these bailouts, we will probably see governments cutting spending from health, education, and social spending.
Working class leaders need to be calling for the nationalization of industry and the banks under workers’ control as the only solution to the financial mess. It is the only way that we can prevent the financial crisis from deepening and further cutting the living conditions of workers everywhere. Production and investment based on need rather than profits is the only way in which we will escape the boom-bust cycle and the attacks that are a hallmark of capitalism.