Transcript Armine Yalnizyan: Income Inequality and Investment

Income Inequality and Investment:
What Lies Ahead?
Social Investment Organization Conference
Vancouver, B.C.
June 17, 2013
Armine Yalnizyan
Senior Economist, CCPA
Overview of Comments
• Globalization and growth: the source of growth
is the middle class
• The next 30 years won’t be like the last 30 years
– Focus on attracting labour, not just attracting capital
• Income inequality trends in Canada and their
impact on future growth of investment funds
• The challenge of slow growth for investors:
short-term gains trigger long-term pains
Who’s buying? A growing middle
class.....but not at home
Growth in Global FDI Inflows
(Canada 18th largest recipient)
Growing Number of People on the
Move – 214 million in 2010
Canada – the UN in Action?
Statistics Canada:
“Canada accepts
proportionately more
immigrants and refugees than
any other country.”
Almost 1 million people arrived in Canada
in 2011. No national housing/transit plan.
FCM: “By 2015, 100 percent of Canada’s labour growth
will come from new immigrants.”
The Rise of the Temps
Labour’s Share of Income In Decline
Good news? (higher profit share)
Within smaller labour share of GDP:
Greater inequality, and rising income gap
1/3 of all income gains going to top 1% primary source of investment funds
Stuck in the middle:
35 years, no gains
More educated, economy 2.5 times as big
Shrinking Middle Income
Opportunities
(affects consumption, savings, debt)
Growing Intergenerational Inequality,
Shrinking Future Investor Base
A Temporary Recovery?
Or The New Normal?
Inequality Bites
• Shorter spells of growth (more volatility), less
growth (IMF)
• Less mobility/opportunity (Corak)
• Squandered potential, underdeveloped
capacity (Conference Board of Canada)
• Trade-off between growing middle class
elsewhere and shrinking existing middle class?
(World Bank)
• Eroded legitimacy of system (Stiglitz, Freeland)
Short-term versus Long-term
challenges
• Slow growth? Boost profit by lowering costs
(lower wages)
BUT
• If I can’t buy, you can’t sell  Inadequate
aggregate demand, slower growth
• Lower wages means less saving, smaller base
for investments down the road....or
dramatically shifting geo-political realities
Recalibrate Investor Expectations?
The Challenges
• Slow growth (global crisis then demographic
shift) increases pressure to lower costs and/or
grow market share elsewhere.
• Pressure on public finance – can only avoid
becoming an economic backwater if invest in
infrastructure to attract capital and labour
• Growing reliance on investment income with
increasing retiree population. (Inflation
potential?)