How did we get into this mess?

By Rod Hiebert, President Telecommunications Workers Union, 28 November 1997

Over the last few months, business publications like The Economist and Business Week have traced the fragility of the world's stock markets and the increasing threat of deflation to the global oversupply of cars, computer chips and other manufactured items. The irony is that we have arrived at this dangerous state of affairs thanks to the success of free market ideology.

In the drive to improve their competitive positions, each corporation has been acting as if it operates in isolation, reducing costs and increasing productivity. The underlying assumption is that by doing this, they will be able to sell whatever they produce. Ironically, it is this unrelenting effort which has created the deflationary situation that business writers are worrying about. Companies are now sitting on supplies of products that greatly exceed the demand for them.

Corporations faced with an oversupply of inventory reduce their prices in hopes of selling their products at a lower price than their competitors. But their competitors are responding the same way. Both the circumstances of this situation and corporations' reaction to it are similar to the factors that led the world economy into the Great Depression of the 1930s.

When I was in grade school in the Okanagan, I remember echoing my teacher's complaints about anti-competitive fruit marketing boards to my dad, who worked in a local fruit packing plant. He explained to me that before there were fruit marketing boards, local farmers regularly overproduced the same crop. They would then engage in fierce competition, dropping their prices in hopes that they could undersell their neighbours.

In this cutthroat environment, farmers were unable to eke out a decent living, let alone recover their costs of production. None of them realized that there was only a certain amount of fruit needed and that people would not would not significantly increase the amount they consumed no matter how much the price of fruit dropped. I learned from my dad that the creation of fruit marketing boards stabilized the industry by preventing overproduction as well as the cutthroat pricing and destructive competition that went with it.

In the ensuing years, I have watched governments deregulate entire sectors of the economy, including the airline, trucking and telephone industries. In each one, prominent players tried to become the most competitive supplier by lowering their costs. In the process they generated an oversupply of their products and drove prices down to the point where their costs exceeded their revenues.

In this environment, companies like Greyhound Air offered bargain basement prices that seemed too good to be true. They were. Greyhound Air recently went bankrupt, along with 200 North American airline companies before it. A host of companies have suffered a similar fate in other deregulated industries. In this ruthlessly competitive atmosphere, countless workers have been laid off, with the attendant effects on their families, communities and local economies.

Our politicians tell us that the loss of workers' jobs and the upheaval this causes are part of the sacrifice that is necessary to make their industries more productive and internationally competitive. They insist that we will all benefit from lower prices and better service. But income differentials are larger than at any time since the 1930s, with workers over 45 and those coming out of school finding it nearly impossible to get jobs that pay more than the minimum wage. At the same time, companies are compromising safety standards and ignoring environmental standards as they go all out to reduce their costs.

All this has resulted from the mindless promotion of competition as our guiding principle. If our leaders had been paying attention to the insights offered by people like my father, they would have realized that they are recreating the conditions which led to the crisis of the 1930s.

Faced with fallout from the “success” of the competitive model, governments are signing deals like the U.S.-Canada Free Trade Agreement and N.A.F.T.A. which weaken their ability to control corporate behaviour. Now Ottawa wants to go even further by signing the Multilateral Agreement on Investment, which will enshrine deregulation in an international level trade agreement. Under the prevailing circumstances, a further extension of free trade could turn the current economic crisis into a world wide depression, as countries compete against each other in an insane race to the bottom.

It's time to acknowledge a simple fact: unregulated competition and uncontrolled market forces will not build the kind of society we want to live in. If we don’t admit this and start acting accordingly, Canadians may be forced to relive the disaster of the 1930s before they can start to deal rationally with our economic problems.