Author: Geoff McCormack

Here’s my take on Universal Basic Income and why we should fight for Universal Services instead. It’s based on a comment in a public forum. I may write a proper blogpost on the topic, supplying sources and figures.

I think the debate around UBI is important for the future of the working-class movement. I’m a socialist and it’s something that I take seriously. I think our understanding of UBI has to be linked to the nature of the Canadian state. Its history illuminates its essentially capitalist character; so I’ll start there. Here’s how I understand the problem:

1. The British state had a hard time getting capitalists to invest “surplus capital” in Canada in the nineteenth century because there was no stable supply of labour power. The labour market was only fully developed around 1850, and unevenly across the soon-to-be country.
2. A labour market was established by restricting access to the land, both for Indigenous peoples and for would-be farmers that came from Europe and elsewhere. Colonial policy was designed to make sure there would be a supply of workers for capitalists. By restricting access to the land, would-be farmers were forced to work for a capitalist for a wage. I think this — plus a heavy dose of racism — is behind the genocide of Indigenous peoples and the residential schools system. Traditional indigenous ways of life are incompatible with capitalism because they have a different relation to the land. Clearing the land also made access to its resources possible. This casts a different light on the Canadian state’s monopoly of Crown Lands and helps disabuse us of the idea that it’s holding them in trust for the Canadian public at large. To the contrary, it is a means to control working people and a gift to business enterprise.
3. The idea of restricting access to the land to create a working class was developed by E.G. Wakefield in “A Letter from Sydney” and is sometimes called the New South Wales system (because the policy was also applied to other British colonies). Basically, the state would set the price of land too high for workers to be able to afford it. This is his theory of the “sufficient price.” His theory had an overpowering influence on British colonial policy. This way, instead of independent farming, people would be forced to join the working class. It was debated in British Parliament and enacted in the “An Act for the disposal of Public Lands” in 1841.
4. The creation of a working class in Canada was a deliberate policy of the British state, as a capitalist state. The Canadian labour market is based on restricting access to the means of production (and therefore means of subsistence). This is similar to the enclosure movement in England, which accomplished the same thing: the creation of a working class divorced from the land.
5. The Canadian state continues to restrict access to the means of subsistence to ensure compliant workers. State supports for the poor and unemployed are deliberately designed to spur people into alienating work. They have never risen above the standards of the English Poor Laws. Over the last decades, social supports have gotten worse. They have been reduced to push more and more people into crumby, poorly paid jobs to make ends meet. The reasons for this are the subject of another conversation, I think, but I believe Canadian capitalism increasingly needs to keep wages low and workers compliant. We know it as neoliberal policy, but I think the policy is being driven by an economic need to improve profitability. In any case, the point is that restricting access to resources is built into the way the Canadian state works as a capitalist state. It is an essential, inalienable aspect of the Canadian state.
6. The capitalist class and the Canadian state want to erode social supports for workers and privatize public services. On the one hand, by eroding social supports, they want ensure workers accept low wages and crumby work. On the other hand, by privatizing public services, they want to create new spaces for profitable investment. They want to increase dependence on the market for goods and services to boost profitability and investment.
7. Universal Basic Income was promoted by the right-wing neoliberal economist, Milton Friedman; the same man responsible for neoliberal “economic reforms” in Chile after Allende was deposed by the right-wing fascistic Pinochet. Why would he support UBI? So people spend on private services, while cutting public services.
8. The Canadian state will always seek to improve the profitability of the system. It’s baked into the cake and an unavoidable aspect of its being a capitalist state. Economic growth depends upon it. Therefore, it will never raise social supports to such a level that it would undermine the coercive integrity of the labour market. In other words, the Canadian state can only tolerate a certain level of social services. It will never give workers enough so they can avoid work and live in dignity. Workers need to be economically coerced into alienating capitalist work.
9. Therefore, I think that UBI — if it is administered by the Canadian state — will not be added to existing social services, but will come at their expense. Furthermore, by privatizing public services, it will worsen the conditions of work for those who deliver the services and will be subject to the same competitive pressures and crisis tendencies of capitalism as a system. Unless we control the process democratically through independent working-class organizations, this will be the result. We are not right now able to administer such a system democratically, because the working class is “on its heels,” so to speak, and the state has exerted itself considerably to disorganize us. Is it any wonder that advanced capitalist states around the world want to adopt it, even though the working class is not yet strong enough to push for it?
10. We need a demand that we can rally around that will break the logic of capitalism and unite public- and private-sector workers. For this reason, I think Universal Services democratically managed by workers for workers could be an answer. I think we can think of it as topping off existing public services with the money that would be put towards UBI. The ruling class will never go for it, but I think working people will go for it, and that provides a foundation for struggle. It is a reasonable demand; and if capitalism cannot provide it, then it requires breaking with capitalism.
    I believe state-administered UBI is 1) a trojan horse for more neoliberal policies and 2) a red-herring, because it diverts our attention and energies into something that will make things worse.

According to official lore, the Crown lands are held in trust by the Canadian state for the benefit of the public. This is misleading. As I show here, the Crown lands were instrumental in creating a working class in Canada and the conditions for its exploitation. By carefully restricting access to the land, the Canadian state forced would-be farmers into a system of wage labour for the benefit of the capitalist class.

The colonial theorist E.G. Wakefield understood that profit induces capitalist investment and that the availability of labour-power is “an absolute condition of a high rate of profit anywhere” (p. 52). “If all the political impediments to colonization were removed,” he wrote, the scarcity of labour-power “would still be sufficient to prevent the emigration of capitalists or capital on any great scale” (p. 96). In addition to the scarcity of labour-power in the colonies, Wakefield pointed to the problems of the “combination” and the “consistency” of labour-power, respectively referring to 1) the ease with which capitalists can bring labourers under one roof and 2) the certainty of having a supply workers ready to hand. These were the preconditions for investing large outlays of capital, which would lie idle if the supply of labour-power were to dry up. “It is not worthwhile,” wrote Wakefield, “to make a commencement without the certainty of being able to carry them on for several years. A large portion of the capital employed in them is fixed, inconvertible, durable. If anything happens to stop the operation, all this capital is lost” (Ibid, p. 53). In the absence of a sizeable pool of labour-power — a developed labour market — large outlays of capital would not be forthcoming, and this would hamper capitalist development in the colonies.

To ensure that the colonies met the above requirements, Wakefield appealed to the authorities to artificially limit “the quantity of land, as to give the cheapest land a market value that would have the effect of compelling labourers to work some considerable time for wages before they could become landowners” (Wakefield, p. 89). The price of land would need to be “sufficient” enough to keep it out of the hands of labourers. The state would thereby preclude the possibility of immediate ownership of land for the promise of an independent farmer’s life in the future — the agrarian ideal. In the meantime, workers would be expected to pay their dues under the watchful eye of a capitalist. In this way, a working class could be created and, absent an alternative means of subsistence, would be compelled by the threat of unemployment and hunger to work for the capitalist class.

Wakefield’s ideas had an “overpowering influence” on colonial policy in England and the Province of Canada (Morrison, p. 392). They became codified in The Land Act of 1841, assented to by the Legislative Council and Assembly of the Province of Canada (Provincial Statutes, Vol. 1, pp. 131-38). “An Act for the disposal of Public Lands,” as it was called, stated that “no free grant of Public Land shall be made to any person or persons whomsoever” and recommitted to a system of land sales to replace the system of land grants that had existed previously (Ibid, p. 131).

The act was introduced to the British Commons by Mr. C. Buller who worked closely with Wakefield in Canada.¹ In promoting the document to the Commons, he confirmed the spirit of Wakefield’s theory expressed in it: “We must tempt the capitalist to embark his money in the improvement of Canada, by ensuring him labour for the cultivation of his property, and we must invite the labourer thither by holding out to him the certainty of being employed by others, until he shall have accumulated sufficient means for becoming a thriving proprietor. This we can only do by applying to Canada the principles on which our colonization should be conducted elsewhere. There, as elsewhere, the placing a sufficient price on waste lands must furnish the means of colonization, while it would serve the yet more important purpose of concentrating the population, which your former system seemed devised with a view of scattering as widely as possible” (Buller, 1843).

Thus, the Crown lands played an important role in the creation of a labour market in Canada, one whose essential structure was finally established circa 1850 (Pentland, 1959). Far from holding Crown lands in trust for the public, the Canadian state restricts access to optimize the conditions for capitalist development, ensuring business has access to cheap and abundant labour-power.

¹C. Buller also helped author the famous Durham Report.

These are unprecedented times. Six months ago, the Bank of Canada (BoC) began a program of Quantitative Easing (QE) for the first time in its 85-year history. It has been creating an average of $6 billion every week since the end of Mach to purchase Government of Canada Bonds, facilitating the injection of nearly $155 billion into financial markets. Amounting to 67% of the bank’s $232 billion government bond holdings, these purchases have been keeping funding markets liquid and interest rates low. Figure 1 shows the evolution of the Bank of Canada’s government bond holdings since 1980. In addition to Government of Canada Bonds, the bank has been purchasing provincial and corporate bonds through two new purchase programs. In the last half year, its total financial assets have grown from $125 billion to $537 billion, an increase of $413 billion.

Analysts at the Bank of Canada have classified 25% of Canada’s publicly traded companies as zombie firms. These enterprises persistently do not earn enough revenue to cover interest payments on their outstanding debts. Two-thirds of these firms are exposed to fluctuations in commodity prices, directly or indirectly, in their business dealings. The majority of these operate in the metal, coal, mineral mining, and oil and gas industries.

Figure 1 shows the Bank of Canada’s Commodity Price Index, which measures movements in energy, metal and minerals, forestry, agriculture, and fisheries commodity prices. The large decline in the index after 2008 is due partly to the drop in global demand for oil following the Great Recession and partly to its oversupply, especially in 2014-15. It was during these latter years that the share of zombie firms increased most significantly, rising from 15% to 25% of all publicly listed companies.

While the study’s last observation was in 2018, there is good reason to believe the share of zombie firms has grown in recent years, owing to the ongoing weakness of commodities prices, the global lockdown following the outbreak of the coronavirus, and state supports keeping otherwise unviable firms on life support. While these firms hold only 3% of all debt, these developments add to the abundance of problems Canadian capitalism already faces. Whether the state can manage the juggling act remains to be seen.

On June 7, the Globe and Mail‘s David Parkinson painted a rosy picture of the Canadian labour market. “Canada’s unemployment rate sinks to new low as hiring gains continue,” the headline reads. He wrote that “Canada’s unemployment rate fell to a new four-decade low in May, as the economy followed up April’s record hiring spree with a month of modest job gains and rising wages.” Referring to last month’s Labour Force Survey, Mr. Parkinson argues that “the labour market continues to be a pillar of strength for the Canadian economy.”

But last month’s Labour Force Survey data do not in fact support his assessment.

Mr. Parkinson relies on the “unemployment rate” for his analysis. This narrow and dubious ratio measures people actively looking for work over the “labour force” (people looking for work and those already employed).

The unemployment rate is often criticized because it does not include those people who have given up looking for work. In the context of general economic stagnation, relying exclusively on the unemployment rate to shed light on the state of employment is unwise. If businesses do not invest and there is chronically high unemployment, many people willing and able to work may give up searching for a job.

In Mr. Parkinson’s judgement, those idle bodies should rest easy knowing they have contributed to the country’s “pillar of strength” – its low unemployment rate.  

Mr. Parkinson argues that the drop in May’s unemployment rate is a positive sign for the labour market. While it is true that the unemployment rate fell, it is not because businesses or governments are hiring. To the contrary, private and public sector employment fell by 13 and 21 thousand, respectively.

The unemployment rate fell because 49 thousand people gave up looking for work and another 62 thousand became self-employed. The largest addition of self-employed persons was in construction, which added 16 thousand. The fate of these “self-employed” workers is tied to fate of the housing bubble. The next largest addition was professionals, who contributed 15 thousand. Health care and social assistance together added 14 thousand, while educational services added 12 thousand. While some of these self-employed workers have had the dubious privilege of joining the ranks of the precariously employed, few of the gains came from “hiring” as Mr. Parkinson suggests.

It is possible to construct a counterfactual unemployment rate by assuming no change in the labour force from one month to the next (i.e. by assuming that all workers who were looking for work one month continued to look for work the next). If we assume that the people who were looking for work in April did not give up in May, then the unemployment rate merely fell to 5.6% in May from 5.7% in April. And the 0.1% increase came from self-employment, not business or government hiring.

Let us now set aside the unemployment rate. It does not capture the state of Canada’s labour market very well.

The employment rate measures the number of employed workers as a share of the working-age population, including public, private, and self-employed workers. It is a broader and, for our purposes, more reliable measure of the state of Canadian capitalism. The employment rate continued to stagnate at 62.15% in May, up from 62.13% in April. This is well below its pre-crisis high of 63.5% over a decade ago. While these percentages seem small, they represent large magnitudes. For example, between September 2008 and September 2009, the employment rate fell from 63.4% to 61.2%, but this represented 361 thousand job losses.

If we focus on the business sector, we get a more nuanced picture. The business employment rate is a narrower measure that excludes self- and public-sector employment. It is a useful gauge of employment trends in the private sector. While Statistics Canada does not make the business employment rate readily available, it is possible calculate it from existing data.

Figure 1 shows the annual average business employment rate from 2007 to 2019. It registers a small increase in the annual average from 39.6% in 2018 to 40.1% in 2019. While it reached its highest post-crisis level of 40.3% in April, it is still well below its pre-crisis high of 41.4% in January 2007. And a close look at the monthly data reveal that the business employment rate fell from 40.3% in April to 40.1% in May. Thus, these data too reveal the unreliability of the unemployment rate and the Globe and Mail’s misleading headline. The bigger story is a decade of stagnation and the country’s persistently low employment rate.

The Panic of 1873 was a financial crisis that triggered the first worldwide economic depression. In those days, they called it the Great Depression. It lasted for 23 years.

Long periods of stagnation and instability are recurrent in capitalism. We’re in the middle of the fourth one right now. And they happen because the system can’t maintain sufficient profitability.

When profits stagnate, so does everything else.

In a message to Congress in 1893, US President Grover Cleveland described the realities facing bankers, capitalists and workers during the original global slump:

… the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even find profit in the fluctuations of values; but the wage earner … is practically defenseless. He relies for work upon the ventures of confident and contented capital. This failing him, his condition is without alleviation, for he can neither prey on the misfortunes of others nor hoard his labor.

The parallels to today are unmistakable, absent only an eloquent head of state.

Unless a proper defense is mounted, the squeeze will be put on workers until profits recover. Depressions intensify the misery of working people and recoveries only happen at their expense. When workers are footing the bill, Business Enterprise will spare no expense in wages, health, or lives.

Several years ago, I was browsing the Library of Congress newspaper archives for first-hand accounts of the turbulent days leading to the Great Depression of 1873-96. The following story was published in The Sun on the day the New York Stock Exchange was shut down to ease the panic. I’ve transcribed it and posted it here for your edification.

The Sun

New York, Saturday, September 20, 1873

A Bewildering Spectacle at the Fifth Avenue Hotel Last Evening.

The scene at the Fifth Avenue Hotel last night was bewildering. As early as five o’clock brokers, whose wet coats showed them to have come directly from Wall street without taking time to change their clothing, entered hurriedly, and gathering in small groups throughout the corridors, anxiously discussed the disastrous events of the day. At eight o’clock the crowd on the sidewalk for half a block on either side of the hotel was so dense that it was difficult to make a passage through it.

A solitary newsboy who proclaimed the failure of the Fourth National Bank was for a moment invested with all the importance of the Vice-President of the Stock Exchange when reading to the bulls and bears the letter announcing the regrets of such and such a firm at being unable to meet their engagements. It was listened to in breathless silence for a few seconds, and then a proposition was made to hold him on the track while the wheel of a University place car passed over his head. He retired for a time, but was afterward heard in the neighborhood of the Hoffman House announcing the failure of many well-known banks and business firms, until he was led away by the ear by a policeman [The newsboy was right. There had been a run on the Fourth National Bank. — GM].

The pavement for some distance from the sidewalk was not unlike a duck pond, but well-dressed men, with much speculation in their eyes, stood ankle deep in the slush apparently with as much indifference as though a well-padded Brussels carpet was under their feet.

Inside a stranger might have been led to suppose that a fair, much more popular than such enterprises usually are, was in progress. Men whose husky voices testified to the vigor of their recent efforts in the Stock Exchange, and men whose muddy boots were no less indicative of their more humble labors on the street, mingled amicably on a neutral floor of the great hotel. Toward the upper end of the hall the crush became greater, until above the office it was hardly possible to move at all. Fortunately a sort of safety valve was found in the

BARROOM

door, and into this the multitude poured by dozens, to emerge in ten or fifteen minutes considerably cooler and disposed to take a much more cheerful view of the financial situation than when they entered. The barkeepers were sorely tried, and it was rumored that one of them was becoming delirious, a report which was said to have emanated in his concocting a sherry cobbler when a mint julep was called for. There was not a great deal of business transacted, for although many were there who evinced a desire to transform the hall into a temporary Stock Exchange, the greater number seemed to feel that it would be more politic to reserve all their energies to meet the exigencies of the coming day. The extraordinary collapse of so many prominent houses in so short a time had predisposed men to give credence to reports which at any other time would have been laughed at as clumsy falsehoods, and the wildest rumors regarding the failure or suspension of other and larger firms gained circulation. Nearly half the banks in New York were at one time or another in the course of the evening said to have collapsed. The general impression was that many of the banking institutions, especially those for savings, would be obliged to sustain a run to-day.

The scene in the reading room was very animated; every chair had its occupant, and as many as could find room sat on the tables. Each man was perusing the latest edition of some newspaper, and the manner in which interesting paragraphs were read aloud to persons who paid not the least attention to them, but were themselves reading something to a friend who was equally indifferent, and anxious only to be heard by someone else, formed a curious Babel of sounds, more novel than intelligible.

Within their mass partition the wearied telegraph operators were working like bees; not a minute’s respite was allowed them, and the monotonous click, click of the instruments was heard until midnight. Every inch of the desk outside that could be made available for writing purposes was in use, and behind the first row who leaned over it was another standing with the printed forms in their hands waiting for an opportunity to write despatches. Even

THE BARBER’S SHOP

was turned into a debating room, and men leaning back in the chairs – their faces covered with snowy lather and their forms enveloped in flowing robes seized every opportunity offered them of talking, without absolutely endangering their jugulars, to give expression to their opinions regarding the events of the day, and, in view of the short space of time allowed them during the wiping of the razor, speaking so rapidly as to be utterly unintelligible. Men who were having their hair cut had a great advantage over those being shaved, and used it to the manifest uneasiness of the latter.

A few restless spirits had collected in the billiard room, and endeavored to forget their cares in the excitement of the game, but they flourished their cues in a manner more indicative of demolishing the lamps than of making a run. Misses, which might otherwise have been unaccountable, were accounted for by the explanation of the player that he was out of practice.

At half past 9 o’clock confidence was in some measure restored by the appearance of Col. Spencer. He was not in full uniform, being, indeed, attired in a rather damp black frock coat. His features bore an expression of placid calmness, and even the most timid, looking upon him, praised God and took courage. He was leaning upon the arm of an aide-de-camp, who was also out of uniform, and as the two passed slowly up the hall they were followed by many an eager eye, and the aide-de-camp, shining with a reflected light, came in for a share of the admiration.

Toward 11 o’clock two gentlemen, probably from the rural districts, entered, and were much surprised at the throng which filled the hall. One of them asked the clerk if there was any special reason for this gathering. He was informed that it was caused by some slight financial entanglements in Wall street.

“HOW MANY HOUSES FAILED TO-DAY?”

asked the gentleman. He was told that several had succumbed to the storm, including the great house of Fisk & Hatch. The same gentleman then took up an evening newspaper of Thursday which was lying on the desk, and seeing the announcement of the suspension of Jay Cooke & Co., he asked whether it was true. The clerk laughed, and the second gentleman, who had not yet spoken, now said, with contempt, “Pshaw, man, you must have been asleep; why, I knew that an hour ago.” A hearty laugh from all within hearing greeted this instance of information promptly received.

Henry Clews entered about 9 o’clock, and was instantly surrounded by a number of eager questioners, who hung upon his words as though they were the utterances of a prophet. He remained about an hour.

Noticeable in the throng were: John F. Tracey, B. F. Carver, H. N. Smith, M. L. B. Marin, Harvey Kennedy, John R. Garland and his partner Mr. Seeley, Mr. Cecil, Mr. Clark of the firm Clark & Walton, G. J. Haven, Wm. Heath, A. Hendrix, and many others.

Every room in the hotel was occupied, and late comers were obliged to be content with a bed in one of the parlors.

About 11 o’clock the crowd began to decrease, and by midnight the hall was deserted.

Chronicling America: Historic American Newspapers, Library of Congress, http://chroniclingamerica.loc.gov/

Transcribed by Geoff McCormack