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The Banker Who Dares Argue Inequality Is Worse than Taxes

Why Paul Summerville begs to differ with his business friends (as does The Economist). Fourth in a series.

By Andrew MacLeod 29 Jan 2014 | Tyee Solutions Society

Andrew MacLeod produced this series with funding from The Tyee Solutions Society in collaboration with Tides Canada Initiatives. TCI neither influences nor endorses the particular content of Tyee Solutions Society reporting. Other publications wishing to publish this story or other Tyee Solutions Society-produced articles, please see this website for contacts and information.

MacLeod is The Tyee's Legislative Bureau Chief in Victoria. Find him on Twitter or reach him here.

When it comes to addressing inequality, British Columbia has both advantages and disadvantages, says Greg D'Avignon, president and CEO of the Business Council of B.C.

The BCBC represents some 250 companies that employ about a quarter of working British Columbians. It recently released its B.C. Agenda For Shared Prosperity report, which argues for growing the economy before using any increased revenue to address inequality.

"We're starting from a pretty good place," D'Avignon said in an interview. "We don't have an appreciation of how good we've got it."

And to those who say B.C.'s government should use the tool of raising taxes to torque disparity, D'Avignon has a simple answer: Bad idea.

D'Avignon considers it a scientific fact that doing so will damage the overall economy to the point even the less fortunate are harmed. But the consensus among economic thinkers is not so firm, as we'll see when we encounter investment banker Paul Summerville later in this story, and dip into some of his favourite reading material, The Economist magazine.

Through a U.S. lens

For many people, their perceptions of inequality are driven by the much more stark reality in the neighbouring United States and they forget what Canada's got right, D'Avignon said. There are stronger supports and much better social mobility here, he said.

"We've got a very diversified and open economy which allows for people to seek out opportunities," he said.

In B.C., the education and health care systems are better than the Canadian average, which in turn is better than in most of the world, said D'Avignon. For health outcomes like life expectancy, if B.C. were a country it would be among the top 10 in the world.

B.C. does well on early childhood education compared to other provinces, but not as well as Belgium and some other countries, he said.

A couple weeks after we spoke, the OECD released its report on education. While slippage on math scores was the stuff of hand-wringing in Canada, the B.C. government found much to like in the results compared to the other 64 countries and economies included in the report.

"Only one jurisdiction statistically performed above B.C.'s range in reading, only two jurisdictions in science, and nine jurisdictions in mathematics," a government press release said. "On a straight numerical rank basis, B.C. is sixth in both reading and science and 12th in mathematics."

And the results weren't a matter of a few good schools pulling up the average, the release said. "B.C. also demonstrated high equity in student performance, which is the gap between the highest- and lowest-performing students, showing the system is delivering high student achievement in an equitable manner," it said.

The BCBC's D'Avignon said despite B.C.'s successes, the status quo could be better. "We've got some challenges in the Lower Mainland particularly," he said.

Median incomes in Metro Vancouver are in the lower third for municipalities in Canada, he said. Debt in the region is the highest per capita. The cost of living is relatively high, and is driven mainly by the high price of housing.

Many immigrants are attracted to the Lower Mainland, but it is taking them longer now to integrate into the Canadian economy than it did a decade ago, he said. The middle class is stretched by the cost of both housing and transportation. Across the province, child poverty rates are the highest in the country.

'Start the conversation': D'Avignon

"It's difficult," said D'Avignon when asked how to make housing more affordable. "Everyone says we should have more affordable housing, but nobody's prepared to do anything about it."

The City of Vancouver, for example, says it supports affordable housing but it also charges higher development fees than other cities do, he said.

Prices are driven higher by a combination of factors, including the limited supply of land in a city nestled between mountains, ocean and the agricultural land reserve, D'Avignon said.

One could also add to the list cheap interest rates, which have made it possible in recent years for more people to borrow more money and drive up prices. A Dec. 14 article in The Globe and Mail looked at whether foreign speculators looking for investment properties are pushing up prices.

In general, on the question of inequality, D'Avignon said the BCBC recognizes the problem but doesn't have all the answers. "Our position is the business community isn't going to solve all those problems, but we should be talking about them," he said. "We don't have all the answers, but we wanted to start the conversation and be part of the solution."

And what about raising taxes to have more money available to spend on social programs? D'Avignon, who was once campaign manager for former B.C. premier Gordon Campbell, responded, "The research shows it doesn't work."

When researchers at the University of Calgary, Canada's home to neoliberal economics, looked into the issue they found that inequality has grown in Canada, but argued fixing it would pose an even greater risk to the economy.

It's a theme picked up by conservative commentators who either argue inequality is not so serious in Canada or that the obvious fixes wouldn't work.

Former investment banker Paul Summerville disagrees. He argues that an economy that delivers unequal outcomes is desirable, but that we should also protect the things that ensure everyone has equal opportunities.

Supports key to my success: Summerville

Summerville, who lives in Victoria, has run for office in provincial and federal elections as an NDP and Liberal candidate.

Based on personal experience, he argues that successful citizens are made, not born. He described his roots as lower middle class, coming from Scarborough, a blue collar part of Toronto.

He worked hard and by the age of 31 finished a PhD without student debt, he said, noting the education was cheap considering its quality. A couple times when he had health issues, the Canadian health-care system was there for him. He went on to an international banking career at firms that included Lehman Brothers and Royal Bank. He retired to Victoria while relatively young, and when we've made coffee dates in the past they've been arranged around his golf tee times.

"I think I was raised at a wonderful time in Canadian history for someone of my background," he said. "Talent and hard work were rewarded, but the supports were in place so that they could be."

That's not to say everyone should be the same, or expect the same success. "Unequal outcomes are an important part of a social democracy," Summerville said. There need to be rewards for entrepreneurship, encouraging people to work hard and take chances that build wealth, he said, adding that at the same time things like education, health, access to justice and public transit need support.

Summerville says his view that social justice and a strong economy are compatible -- and in fact rely upon one another -- gets a sceptical reaction from his banker friends. Their common view, he has written, is that "since market outcomes were always fair the spoils going to the smartest and hardest working, arguments for social justice and equality of opportunity were simply a cover for the lazy and undisciplined."

When Summerville announced he was running for the NDP, "Some old colleagues were so offended by my choice of political parties that they didn't return my phone calls then or now. My candidacy was a betrayal…"

Those observations are from a book proposal Summerville created. It's not as if his ideas make him a radical outlier. Summerville referenced a series The Economist ran last year describing the True Progressivism which came to similar conclusions.

"Research by economists at the IMF suggests that income inequality slows growth, causes financial crises and weakens demand," the series found. "In a recent report the Asian Development Bank argued that if emerging Asia's income distribution had not worsened over the past 20 years, the region's rapid growth would have lifted an extra 240 [million] people out of extreme poverty. More controversial studies purport to link widening income gaps with all manner of ills, from obesity to suicide."

The cover piece in the same Economist series urged governments in relatively "rich" places like B.C. to do away with "deductions that particularly benefit the wealthy...; narrowing the gap between tax rates on wages and capital income; and relying more on efficient taxes that are paid disproportionately by the rich, such as some property taxes."

'The Great Gatsby Curve'

Canada's inequality is high relative to the bulk of OECD nations, but Summerville argued it's unfair to compare to Nordic countries like Denmark or Sweden. Canada is growing relatively rapidly, adding 195,000 new citizens a year, which is higher than anywhere other than Australia, he said. More than one in five Canadians were born outside the country.

There is a need to be smart about immigration policies and make sure that new arrivals can integrate into the economy, but the difference should be kept in mind when making comparisons, he said.

"There's the comparing us to the rest of the world, and to where we could be," said Summerville, who is busy now starting a new business venture. "Canada's doing better than other countries, but the point is Canada should be leading edge."

One measure where Canada does relatively well is on what's become known as The Great Gatsby Curve, which shows the relationship between inequality and inter-generational mobility. Across countries, as inequality increases, children are less likely to earn more money than their parents.

Interestingly, however, the curve shows Canada with better mobility than several countries with lower inequality, including Japan, Germany and Sweden.

In a December interview on CBC radio, University of Ottawa economist Miles Corak cautioned that the available social mobility statistics say more about how things are turning out for the baby boomers than they do about what's happening for generations growing up and entering the work force now.

With inequality growing in B.C. and Canada over the last few decades, the question is whether young people will continue to move up and down the income ladder compared to their parents with relative ease. For those alert to reasons for worry, there are plenty.

This article is part of a series for the Tyee Solutions Society looking at the causes, costs and potential solutions for wealth inequality in British Columbia, Canada's most unequal province by some measures.

Tomorrow: High BC housing costs weaken economy, drive inequality  [Tyee]

Read more: Rights + Justice

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