This chapter focuses on the economy as a social system that is operating within a complex global market. The opening scenario portrays the difficulties Canadians face in the job market as the economy restructures. Seldom do people now work for one employer during a working life.
The economy is the social institution that organizes production, distribution, and consumption of goods and services. Goods range from basic necessities to luxury items. Services include various activities that benefit others including government services. Modern complex societies are the result of centuries of technological development and social change.
Agrarian societies were much more productive than hunter/gatherer societies and the agricultural surplus permitted people to take on specialized tasks. For the first time, there is a distinct economic institution.
Five revolutionary changes are identified as resulting from the Industrial Revolution of Europe beginning in the mid-eighteenth century. These include new forms of energy, the spread of factories, manufacturing and mass production, specialization, and wage labour. Greater productivity steadily raised the standard of living, although the benefits were unequally distributed. The Thinking About Diversity Box (p. 405) describes the migration of poor rural families in Quebec to the textile factories in Manchester, New Hampshire.
By 1950, Canada was becoming a post-industrial economy, one based on service work and information technology. Machines reduced human production labour and the service industries expanded as manufacturing declined. Finally, an information revolution is being driven by computer technology where ideas and literacy are important and work is being decentralized.
Three economic sectors exist and their relative balance shifts over time. The primary sector is the part of the economy generating raw materials directly from the natural environment. Today in Canada only 3.9% of the labour force is involved in this sector. The secondary sector is the part of the economy that transforms raw materials into manufactured goods. Only 21.7% of the labour force is involved in such work. The tertiary sector is the part of the economy that involves services rather than goods. About 74% of our labour force is employed in such work. Figure 16-1 (p. 407) indicates the different sector activities by a country's level of income. High-income countries such as Canada create most of their jobs in the tertiary sector. Figure 16-2 (p. 407) shows the shifts in sector activity in Canada from 1871 to 2001. The shift away from the primary sector is quite dramatic. The Thinking It Through Box (p. 408) looks at the distribution of secondary jobs through the provinces. Ontario and Quebec remain the manufacturing centres in Canada.
Global economic activity reduces the concept of nationhood as we have an "expanding economic activity that crosses national borders." As Global Maps 16-1 and 16-2 (p. 409) indicate, there is specialization in economic activity in various countries. Economic activity is such that products pass through more than one nation. Businesses, rather than nations, make the decisions and the rights of workers may be compromised.
Capitalism is an economic system in which productive resources are privately owned. This system has three distinctive features: private ownership of property, pursuit of personal profit, and free competition and consumer choice. Although Canada is a capitalist country, the government intervenes in the marketplace by owning resources and making regulatory decisions. Justice is still governed primarily in freedom of the market place.
Socialism is an economic system in which productive resources are collectively owned. Its distinguishing characteristics include collective ownership of property, pursuit of collective goals, and government control of the economy. Justice is attempted through meeting everyone's needs equally. Socialism as an economic system is declining globally.
Communism is a hypothetical economic and political system in which all members of society have economic and social equality. Marx viewed socialism as a transitory stage on the way to communism. However, nowhere has this system been achieved and political equality has been achieved nowhere.
Several Western European democracies have combined a market-based economy with social welfare programs. Welfare capitalism is a political and economic system that combines mostly a market-based economy with extensive welfare programs. Sweden and Italy are examples. In Japan and other Pacific Rim countries, state capitalism exists where government and private industry co-operate to facilitate productivity.
Since no pure examples of capitalism and socialism exist, precise objective comparisons are not possible. However, certain crude comparisons can be made keeping the following factors in mind. Capitalist societies out-produce socialist societies by a ratio of 2.7 to 1. While socialist societies have lower overall standards of living, they create less income disparity.
Capitalist societies provide freedom to pursue one's self-interest, while socialist societies provide freedom from want. Socialist societies regulate the behaviour of their citizens more than capitalist societies.
The collapse of the Soviet Union has led to sweeping changes in Eastern Europe and the previous Soviet republics. The market reforms are proceeding unevenly and there is some evidence that improvements in living standards are accompanied by increasing economic disparity.
The Canadian labour force is also undergoing dramatic change. In 2001, 16.7 million people were in the labour force, representing two-thirds of those over the age of 15. Male participation is higher than female, but the differences are diminishing. Figure 16-4 (p. 414) shows that Blacks have the highest participation rate and English the lowest.
Currently, less than 4% of the Canadian labour force is involved in farming. Yet, Canadian agriculture is more productive now than it was in the past. More and more production is occurring in corporate agribusinesses, as the "family farm" disappears. There is some concern that increased productivity comes hand in hand with pesticides and chemicals. Organic farming is becoming increasingly popular.
The move from manufacturing to service work is significant, but many of the jobs pay less than those in the manufacturing sector that they have replaced.
One way to describe the change that is occurring in our economy is to divide work into two different labour markets. The primary labour market includes occupations that provide extensive benefits to workers, while the secondary labour market includes jobs providing minimal benefits to workers. A growing proportion of new jobs in post-industrial economies fall into the secondary labour market. The workers in these jobs are those most likely to experience dissatisfaction and are sometimes referred to as the reserve army of labour, those last hired during expansion and first fired when the economy contracts.
Labour unions are organizations of workers that attempt to improve wages and working conditions through strategies including negotiations and strikes. Canadian labour union membership has been remarkably stable, with approximately one-third of the labour force involved for the last twenty years. Women's involvement has increased slightly and the highest level of penetration is in the government or public administration, where 70% belong to unions. There is considerable variation by industry sector and by region of the country. Globally, those countries with social democratic values have higher levels of union participation than those with pro-capitalist values. Global competition has led to unions in Canada being less concerned with wage increases and more concerned with job security.
A profession is a prestigious, white-collar occupation that requires extensive formal education. Professions share the following characteristics: theoretical knowledge, self-regulated training and practice, authority over clients, and community orientation rather than self-interest.
Many new service occupations are seeking professional standing, a process known as professionalization. This process is initiated by members of an occupational category by labelling their work in a new way. This is followed by the development of a professional association, which initiates a code of ethics and perhaps even schools to train members. In marginal cases, paraprofessional status may be obtained, denoting special training, but lacking extensive theoretical education. Because of our proximity to the U.S., we lose much of our possible professional workforce. The Media Perspectives Box (pp. 416-417) indicates that we are regaining some of our losses.
Self-employment refers to earning a living without working for a large organization. In the early nineteenth century, about 80% of the U.S. labour force was self-employed, but this then declined precipitously.
In recent years Canada has experienced increases in self- employment so that in 2001 the self-employed made up 15% of the labour force. Some professionals are involved but most are small business owners. For the most part these are well-educated, relatively affluent individuals. Although women are increasingly joining this category, 65% of the self-employed are men.
While substantial profits are possible, many small businesses go bankrupt during downturns and pension and health care benefits must be self-provided. As well, these individuals are ineligible for government programs like employment insurance.
Underemployment is employment at a task that uses less than one's full talents or abilities. Part-time workers, young university graduates, and immigrants with credentials not recognized in Canada often find themselves doing much less than what their training would indicate they can do. Table 16-1 (p. 418) would appear to indicate, however, that education is ultimately a good predictor of occupational success.
While unemployment is found in all societies, it is seen as a natural phenomenon in capitalist societies. It is, however, a problem in socialist societies as well. Canada's unemployment rate in 1993 was 11%, but dropped to 6.8% in 2005. While part-time work has been increasingly replacing full-time work, many of these positions are accepted involuntarily.
Unemployment rates vary by region (see Canada Map 16-1, p. 420) and by race/ethnicity (see Figure 16-4, p. 414). Official unemployment rates, however, understate the problem since "discouraged workers" and the underemployed are not identified.
In violation of government law, there exists an underground economy, or economic activity involving income or the exchange of goods and services that is not reported to the government. Such activity ranges from having garage sales and not reporting the money generated, to the illegal drug trade. The single largest segment of this underground economy, however, is legally obtained income unreported on income taxes. Perhaps 15-20% of the economic activity in Canada is unreported. The imposition of the G.S.T. in 1991 has provided the incentive for under-the-table cash payments.
Computer technology is changing the character of work. The changes include de-skilling labour, making work more abstract, limiting interaction, and enhancing employer's control of workers. The Thinking Globally Box (p. 421) shows clearly how information technology is changing the way all work is done and, indeed, what kinds of jobs are created.
A corporation is an organization with a legal existence including rights and liabilities apart from those of its members. Most large corporations are owned by thousands of shareholders, which theoretically should disperse wealth in society. Sociologists note, however, that major stockholders comprise a small economic elite in Canada, so that the distribution of wealth in Canada has been unchanged by corporate proliferation.
Although many Canadian corporations are small, the Canadian economy is dominated by large corporations that, unlike the U.S., include the banks and other financial institutions. Canada's banks are, in fact, involved in attempts to merge in order to be larger global players. Corporate concentration arises in Canada because of the power of a small number of people, interlocking directorships, geographic centralization of investment in Ontario and Quebec, and the tendency of corporations, especially after the Free Trade Agreement, to expand by acquisition or merger. Table 16-2, p. 424, shows the top revenue-producing companies in Canada for 2006. Clearly money, finance, oil, and other natural resources dominate, with oil playing an increasingly larger role.
A conglomerate is a giant corporation composed of many smaller corporations. Beatrice Foods and the Irving empire are examples. Corporations are also linked by wealthy families, most of whom know each other socially and have business interests in common.
Another type of linkage among corporations is called interlocking directorates, or social networks made up of people who simultaneously serve on the boards of directors of many corporations. It is not necessarily against the public interest, but does tend to concentrate power. Not all the linkages are necessarily formal, but the social circles exchange valuable information. More recently, Peter C. Newman has suggested that the arrangements described above are outdated. The new establishment is a meritocracy, based on "what one can do" rather than "whom one knows."
The largest corporations, centred in the U.S., Canada, Japan, and Western Europe now span the globe. Access to vast markets and cheaper labour is part of the reason. As was noted in Chapter 12 (Global Stratification), there is a substantial debate on the effects of capitalist expansion to poor countries. Modernization theorists suggest long-term advantages of expanded economies, while dependency theorists suggest expanded inequality with the rich nations benefitting at the expense of the poor. The issue of market versus government economies is discussed in the Thinking Globally Box (pp. 426-427).
The economy is one of several social institutions designed to meet the needs of societal members. The distribution of resources in Canada is highly unequal and there are two major changes that will impact upon that distribution
The Information Revolution is changing the nature of the labour market, but a high proportion of Canadians lack the language and computer skills to effectively participate.
The globalization of economies means that national decisions are often irrelevant to international market conditions. What will Canada and other countries do to respond to these changes? The Media Perspectives Box (pp. 416-417) discusses the loss of Canada's brightest to the U.S. and the recent moves in the other direction.