Income Inequality and Investment What Lies Ahead Social

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 18 th 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? )