A week ago, BC Finance Minister Colin Hansen let the cat out of the bag: the province is going to run a deficit in this year’s budget. And, as promised, two days ago the province repealed the “No More Deficits!” Balanced Budget and Ministerial Accountability Act, pushed through the legislature in 2001.
Hansen’s alibi for what seems like a pretty radical back-pedal on government spending, of course, is the global financial meltdown underway:
“As recently as two weeks ago I was still confident we could table a balanced budget without cutting health and education,” said Hansen. But the American and global economies are in such rough shape that’s no longer possible, he said. “B.C. played no role in precipitating this international crisis, but we are certainly feeling its effects.”
The problem with this alibi—and it’s not just Hansen and the Liberals who lean on it, but people and parties throughout BC and across Canada—is not the claim that global conditions forced Hansen’s hand. They did. The problem with the alibi is the last part: ” B.C. played no role in precipitating this international crisis”. That is bunk. Bunk bunk bunk.
The only way that claim makes any sense is if you believe that the collapse of the US subprime mortgage market, and the crazy acronym-ed derivatives based on it, are the origin of the current crisis. But despite the best efforts of a gaggle of business media, that is just plain wrong. Sure, the subprime bubble was the first explosion we all heard, but it was just one of a whole lot of mines in a minefield we had been laying for at least a couple of decades, maybe longer.
If one mine sets off all the others, is the problem that single mine, or the fact there is a minefield in the first place?
That minefield is the “liberalized” global market in financial instruments that has built up and burst bubble after increasingly inflated bubble since the great wave of financial deregulation and “liberalization” began to sweep across planet in the 1970s.
This wave of “financialization” has with very few exceptions been cheered by B.C.’s corporate interests, the rich, and present and past provincial governments. And it has made them even richer, bigger, and more powerful. That may not make them any different than the affluent anywhere else, but it certainly doesn’t mean they are “not responsible”. Don’t for a minute think that the wealthy of B.C., and its government, had nothing to gain from the bubbles that floated investment banks, hedge funds, and the rest over the last twenty-five years.
In fact, according to Statistics Canada, B.C.’s wealthy have benefited from the power of finance as much or more than any other part of the country. Mean financial wealth in 2005 was higher in B.C. than in any other province, and, at least for the rich, it has grown by leaps and bounds in recent years. And if you thought the wide and growing rate of income inequality in the province was bad, wealth inequality (in household assets) is even worse.
Sure, New York and London are the headquarters of the meltdown, but the idea that affluent British Columbians played “no role” in this crisis is bunk. Indeed, the province has, along with the federal government, done its best to create exactly those market conditions that work for making money out of money (which is easier if you have money): In 2008, for example, BC amended legislation to reduce or phase out corporate capital taxes, increase the range of instruments and activities corporations can engage in international financial markets, and allow hedging losses to be deducted from taxable income.
This is just our own variation on the deregulatory theme. In the generation of this asset bubble, B.C. was blowing as hard as anyone else. And precisely because capital can now flow freely across the planet, it did not matter that our own banking system is more conservative than most. It’s not like our dollars carry a “Please do not use for bubble creation” sticker. On the high seas of derivative wealth, British Columbian capital is the same as anyone else’s.
The task now, at the provincial level, is to remember that B.C. is not “innocent” of the crisis, victims of greedy rich folks somewhere else. Wealth generation among the privileged few, at home or abroad, is no substitute for economic regeneration, especially of the equitable kind. If we want to stop the next bubble, we have to think about how fast we let money slip silently into the globalized ether.