Democratic politics and the surge in income inequality in Canada are deeply linked. The links run in both directions. Politics and the policy choices of governments have contributed to the growth of inequality in recent decades. But inequality also affects politics, in ways which could make growing inequality a self-reinforcing dynamic.
The spike in inequality, which occurred in the 1990s and whose effects persist today, was only partly the result of globalization and technological change. Politics also mattered. Since the mid-1990s, governments have reduced the progressivity of the tax system and cut social transfers such as Employment Insurance and social assistance. As a result, the tax-transfer system is much less effective in reducing inequality than in the past. As the OECD has noted, the redistributive fade in Canada between the mid-1990s and the mid-2000s was among the most dramatic among all member countries.
But inequality also affects politics. Given the greater propensity of the affluent to participate politically, the growing distance between the affluent and the rest also may lead to more discouraged low- and middle-income voters and skew our politics in favour of those at the top. As in other contemporary democracies, it is affluent and highly-educated Canadians who are the most likely to be politically active, not only by voting but in other ways. For example, those with incomes over $110,000 are more than twice as likely to have signed a petition and to have joined political parties than are those with incomes below $30,000. In addition, the marginalization of organized labour, the decline of equality-seeking social movements and voluntary organizations, and the crippling of advisory bodies and think tanks through loss of public funding have weakened the traditional advocates of the economic interests of less affluent Canadians. There is a danger is of a self-reinforcing cycle: growth in inequality accentuates the political advantages of the affluent, governments respond by becoming more solicitous of their interests, repeating the cycle.
Those concerned about inequality will need to think in new ways. A striking feature of the new inequality is that while the rich have gotten richer and middle-class Canadians have struggled, there is little evidence that the poor have gotten poorer. Indeed, throughout the growth in inequality, poverty has been stable or even declining, depending on how it is measured. Social reformers, who have traditionally relied on anti-poverty campaigns to mobilize supporters, need to redirect public attention to the broader problem.
The key lies with the middle class. Middle and especially lower-middle income earners have struggled in recent decades. Their real incomes sank during the recession of the early 1990s and then recovered in the late 1990s and 2000s to pre-recession levels - effectively a stagnation punctuated by a recessionary dip. Since the early/mid-2000s, incomes in the middle and the bottom rose again, though not enough to counter the long term increase in inequality. In fact, beyond the inequality surge of the 1990s, the big story of the past three decades has been the long term stagnation of Canadian incomes in the bottom half despite economic growth.
In effect, recent economic gains have gone disproportionately to very high-income earners, who are leaving middle- and lower-income Canadians behind. Will the two groups of voters being left behind coalesce? Studies of other countries suggest that the politics of redistribution depend on whether middle-class incomes align with the top or the bottom of the income distribution.
When middle-class voters identify with upper-income groups they are less likely to favour redistribution than when they fear sinking themselves toward the bottom. As the top income groups have pulled further away from the median, the middle class may feel its own prospects dimming. Those expectations could lead to discouragement and withdrawal from politics; they could lead middle-class voters to join the clamour for tax cuts; or they could galvanize political support for policies aimed at improving life chances for middle- and lower-income Canadians generally.
We face a political choice: we can quietly reconcile ourselves to a permanent increase in inequality, or we can adjust our public policies to have greater effect. "Class voting" by party has never been strong in Canada – other factors such as region and ethnicity play a greater role in determining party support. The politics of redistribution are therefore likely to play out within as well as across parties. How they unfold will determine whether the inequality surge of 1990s proves to be an historical blip or a permanent and perhaps self-reinforcing feature of our economic and political landscape.
Keith Banting holds a research chair in public policy at Queen's University and is co-editor with John Myles of the recently published Inequality and the Fading of Redistributive Politics (UBC Press). Carolyn Hughes Tuohy is professor emeritus of Political Science and senior fellow at the School of Public Policy and Governance, University of Toronto. The authors participated in this week's Fall Institute at the School of Public Policy & Governance, University of Toronto, which this year is examining the politics and policy of inequality in Canada and internationally. www.publicpolicy.utoronto.ca.