Letter from the editor: A campaign that’s ignoring hard truths


Canadians are wrestling with the largest wealth gap in their history.

Statistics Canada reported this week that the incomes of Canada’s top one per cent grew at a faster pace than those of everyone else in 2017. And, according to the CBC’s Peter Armstrong, 91 per cent of Canadians live in the bottom two tax brackets.

As a result, during the federal election campaign we’ve seen all the parties roll out proposals to get more money into the pockets of Canadians. They’re promising cheaper wireless rates, child benefits and tax credits, tax credits, tax credits. 

Phase one of the campaign was about electability, a chance to assess the judgement and character of the parties and their leaders. Phase two is about affordability, a chance to compare the parties’ plans to tackle a growing wealth gap. 

You don’t need me to explain why politicians would promise voters more money. But as every parent knows, giving candy to a child is not a long-term crisis-aversion strategy, nor is it a particularly healthy growth plan.  

Canada’s economy faces a looming demographic cliff. Its impact will be profound: the cost of health care will strain finances, a shrinking labour force will reduce productivity and the selling of hundreds of thousands of small businesses could lead to massive job losses through consolidation. 

Where’s the campaign platform tackling the silver tsunami?

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The resource and energy sectors that for centuries have served as the bedrock of the country’s prosperity are facing geopolitical, environmental and trade headwinds. Meanwhile, the innovation economy is racing to catch up in artificial intelligence, digital currency and e-commerce. 

Where’s the campaign platform tackling Canada’s economic transformation?

There are only two ways to create personal wealth: income and ownership.

Politicians tend to focus on pocketbook issues to generate more income, or mortgage and home-renovation tax incentives to increase the value of home ownership. 

Jon Shell, managing director and partner at Social Capital Partners and friend of The Logic, has a proposal for politicians: focus on company ownership.

Research from the Atkinson Foundation and the University of Waterloo’s Sean Geobey and Meg Ronson shows that 41 per cent of Canadian small-business owners will retire over the next five years, over half of whom will end up selling to someone they don’t know. Read: private equity. 

“The question is, what happens in the next 20 to 30 years?” Shell asked me over coffee last week. “We have all of the baby boomers retiring. They’re going to be selling their businesses. How do we want those businesses to be owned and governed going forward? A private equity company might be great, but I want to ensure … that it’s not just hope for the best.”

So, Shell’s non-profit has partnered with an institutional investor—he won’t say which—to fund more employee-owned companies through employee stock ownership plans (ESOP). 

An ESOP is a benefit plan that allows employees to buy their company’s shares at a tax-advantaged rate indirectly through a trust fund the firm has set up. 

In essence, it creates a retirement plan for employees funded by debt from outside investors. It also gives employees and communities some control over their fates long after a company’s original owner has moved on. 

There were 6,624 ESOPs in the United States as of 2016. Canada, as of this July, had just 65. That’s also including partially owned businesses.

Shell has an explanation: regulation. In the U.S., the government has imposed favourable tax treatments; allowed the appointment of an ESOP trustee that holds shares on behalf of all employees to sit on a company’s board and have governance rights over shares; and placed ESOPs under the watchful eye of the labour department instead of the treasury. 

“Our hope is to figure out models where a bunch of general partners can see it as a profitable business, then add it to what they do as institutional investors,” Shell explained.

If you care about wealth inequality, you need to care about ownership. And if you care about ownership, you need to start getting creative about how to finance new approaches to the economic transition.

The risk of governments not thinking long-term are real. 

A poll conducted for the Broadbent Institute last March showed those most worried about their cost of living are also more likely to feel threatened about the future, are more cynical about government and are more likely to exhibit anti-immigration sentiment. 

The country needs politicians brave enough to share hard truths about where we are, and where we need to go. 

Let’s hope the third phase of the election campaign will reveal a party and a platform willing to tackle that.