Is globalization the primary culprit in income inequality in Canada’s economy? Should the federal government promote legislation to harness the free market? One Bank of Canada official believes so.
Tiff Macklem, the central bank’s deputy governor, told a crowd in Sao Paulo, Brazil that market forces let loose by globalization have hurt international equality, but argues that they have also helped it at the same time. Macklem believes the issue at hand is not temporary and governments must address it soon.
“Over the past quarter century, steady advances in transportation, communication, and information technologies, underpinned by the widespread adoption of market-based economic policies, have globalized and expanded economies everywhere, especially those of Brazil, India and China,” explained Macklem in his speech released to the public
. “Never in history has economic integration involved so many people, such a variety of goods, and so much capital.”
The deputy governor told the audience, mostly made up of business people, that inflation increases hurt the poor more than the rich and the central bank can fight against income disparity by maintaining low inflation and protecting the financial system
Macklem cites China, Denmark, Germany, Japan, New Zealand, Sweden, the United Kingdom and the United States as examples of rising income inequality
. Upon analysis of advanced nations, the U.S. maintains one of the highest income inequality rates, which has been a growing trend since the early 1980s.
“Indeed, broader cross-country evidence suggests that lower inequality may in turn be good for sustaining growth,” said Macklem. “In short, market forces have been a powerful mechanism for creating wealth. At the same time, however, globalization, combined with technological change, is concentrating wealth in fewer hands within many countries.”
He insists, however, that it is not an attack on the free market, but since markets are facing intense scrutiny and movements have formed, such as Occupy Wall Street
, the markets need to be reined in.
Throughout his speech, he also commended the monetary policy of Brazil
. Macklem explained that both Brazil and Canada did not bail out their financial institutions, policy frameworks performed well under stress and enacted economic policies have proved to be “resilient.”
“To an important degree, this outcome reflects the guidance we took from our own past mistakes in the 1980s and 1990s,” stated Macklem. “Learning from bitter experience, Canada and Brazil put in place robust economic frameworks to support markets, including flexible inflation-targeting regimes, prudent fiscal policies, sound financial sector regulation and proactive oversight.”