In its latest report on the wealth of Canadian households, Statistics Canada found that the gap between the country’s wealthiest and poorest citizens is widening at a record pace.
The report also found that most of the country’s wealth is held by relatively few individuals. According to the study, the wealthiest 20 per cent of Canadians account for nearly 68 per cent of the country’s net worth, while the bottom 40 per cent account for just three per cent.
Those with the lowest incomes have been hardest hit by soaring inflation and stagnant wages, according to the study. Middle-class Canadians, meanwhile, spent an average of $1,306 more than they earned in income in the first quarter of this year.
To make matters worse, a study published last week by Canada’s largest consumer insolvency firm, MNP, showed that 35 per cent of Canadians don’t make enough money to cover their monthly bills and debt payments — the highest percentage ever recorded by the firm.
Any society, no matter how egalitarian, will always have rich and poor people, but it’s clear that our current system doesn’t work for the benefit of most Canadians.
Some have called this gap between the rich and the lower and middle classes the “great divide.” It’s an accurate description for the growing disparity that has seen the middle class shrink while the ranks of the poor swell and more and more capital flows into the hands of the very few.
If this continues, the great divide between the rich and the working class will lead to the deterioration of our socioeconomic fabric, with the result being a spike in crime and violence, more social unrest and more disengagement from our democracy as people increasingly feel the system is rigged against them.
Businesses are largely to blame for this problem because they have failed to engage employees by making them partners in productivity and profits. If workers don’t feel that they’re getting a fair share of the profits they help produce, then they will be tempted to support government wealth redistribution policies, and our society will drift further toward a socialistic system. We’re already well on the way there.
The core challenge we face is how to create more wealth while at the same time ensuring that it is spread more evenly throughout the economy by giving employees the chance to participate in wealth creation.
As the founder of Magna International, I brought in a profit sharing plan and made it a key economic right in our “corporate constitution.” When employees at Magna first participated in profit sharing on wide scale, the company’s revenue increased 60 per cent in the first year, 100 per cent the next year and then doubled again the year after that.
Profit sharing turned employees into highly incentivized partners. My only regret, looking back now, is that I didn’t give employees more than 10 per cent of the annual profits. If I had done that, Magna would be even bigger and more profitable than it is today.
Such a system could work on a national level, as well. Requiring large corporations — those with more than 300 employees — to share up to 20 per cent of their annual profits with employees and managers would be the best way to address the growing levels of income disparity. This could be implemented on a sliding scale depending on the size of the company.
Those with between 300 and 1,000 employees would be required to share five per cent of their profits. Companies with 1,000 to 5,000 employees would share 10 per cent. Businesses with 5,000 to 10,000 employees would share 15 per cent, and those with more than 10,000 employees would share 20 per cent of their annual profits.
Modern businesses remain focused on keeping labour costs low, which has led to wage stagnation, lower productivity and reduced household spending. It’s the exact opposite of what automotive pioneer Henry Ford did in 1914, when he doubled the daily wages of his employees.
Ford believed that raising wages would increase productivity, reduce turnover and boost profits. Two years later, the company’s profits doubled, and sales continued to soar. Sharing profits with Canadian workers will have a similar impact today, more than a century later.
Corporations and the very rich have to realize that if workers don’t get a fair wage, their purchasing power will shrivel and the economy will start to crumble. When that happens, who’s going to buy their products?