Over the summer of 2002 I spent a couple weeks in the China’s far north-western province of Urumqi province pretending to be Marco Polo. The region provided a startling physical and cultural contrast to the China we most often think of as represented by Beijing and Shanghai. Predominantly Muslim, rural and far less developed than the country’s eastern seabord, Urumqi was home to an increasingly antagonistic relationship between the local population and the national government. The then-nascent war in nearby Afghanistan and increasing rhetoric about the threats posed by Islamic fundamentalism only stoked the fires of that antagonism.
I spent countless evenings sitting at local restaurants talking with the Uighur equivalents of me about their lives in China, the challenges of minority status in China, and the persecutions they faced. And while many were initially reserved while in public, on several occasions I was ushered into back rooms where, away from over-jealous listeners, I was told of family members and friends who had disappeared for their roles in advocating for rights, cultural preservation and local autonomy.
What struck me at the time was the fervor with which my hosts explained their desire for voice, for recognition and ultimately for a role in deciding their own fates. The violent protests and reprisals that engulfed the province in 2009 thus came as little surprise. If anything I wondered why it had taken so long to boil over. What I heard over bowls of soup was a desire for recognition and respect no different than what Hegel’s Philosophy of Right taught us about man’s desire for recognition when he wrote it in 1833.
Weeks before, as I travelled through the country’s predominantly Tibetan countryside in Sichuan and Northern Yunnan province, I experienced the same. On several occasions I shared tea with young Buddhist monks who, eager to speak English, and once away from prying ears, shared their perspective on their rights and their desire to determine their own futures. The rapid influx of Han Chinese into traditionally Buddhist regions only served to sharpen their demands. And like in Urumqi, the protests that swept through monasteries across the region in early 2008 was far from surprising. Eventually those demands for recognition and the tensions they cause boil over.
The current unrest and upheaval in Syria is fundamentally no different. Yes, the issues, actors and contexts are extremely different. However, as our brief time in Syria in 2009 taught my wife and I, the confluence of stagnating economic prospects and a lack of voice provided kindling for the current fire. I remember a conversation one night with a local engineer about Syria’s “supposed democracy,” his words not mine, and the growing angst that the lack of free speech and truly democratic accountability was catalyzing. Syria was ripe for change, he said, because people were demanding a voice. Once again, the subsequent protests fail to hold much surprise.
What’s interesting is that there are places we’ve been to where, based on what seemed like public consensus, I’d swear the revolution should be right around the corner – like Cameroon – but where nothing has happened, and others – like Tunisia – where just over a year ago we heard not the slightest indication of what was to come. The mix of factors that determines the speed of change is huge – economic issues, the strength of the state, communications tools, grassroots organization etc.
But beyond these specific contextual factors, what’s interesting is that Fukuyama’s once-negated thesis on the natural evolution towards democracy looks increasingly apt. Many thought that the survival of autocratic regimes in Asia and the Middle East discredited Fukuyama’s work. Contemporary events however might just bring him back en vogue.
Ultimately, what still needs questioning is his thesis on “the end of history.” Recent events might mark a progression but is contemporary democracy really it?
Why continued corporate tax cuts miss the point.
Much ink has been spilt debating the merits of continued corporate tax cuts in Canada. But it’s fair to say that much of this debate misses the point. For corporate tax cuts are only one element, amongst many, of an economic strategy that will facilitate the development of a highly skilled, flexible workforce that will provide the foundation for a competitive Canadian economy well into the 21st century.
In isolation, corporate tax cuts are proving to have very little impact on either job growth or foreign direct investment. For example, the federal corporate tax rate in 2009 was 18%, down from 29% a decade ago. Similar cuts in Ontario have made this province tax regime one of the most competitive in the developed world, ahead of both the US and EU averages. But instead of leading to more investment in employment-creating or productivity enhancing projects, all they’ve done is pad corporate profits and savings rates – while business investment and private sector R&D development inputs have actually decreased, as shares of GDP, across Canada.
The impact on foreign direct investment was similarly muted. Even the Canadian Association of Manufacturers and Exporters (an invariably staunch supporter of corporate tax cuts), have admitted that “over the past decade, reductions in Canada’s effective and average combined statutory corporate tax rates have had little observable impact on net flows of foreign direct investment into the country.”
So why, in the face of Canada’s so far ambiguous (and perhaps that’s being generous) record with corporate tax cuts, are policy makers and economists still battling over their implementation – and why are we now looking to reduce them further (target of 15% in 2012)?
Jack Mintz from the University of Calgary is often pointed to as a primary source of support for the cuts in corporate taxes. His work, as well as research by the OECD, highlights a large body of empirical evidence that shows that higher corporate taxes have a negative relationship with economic growth, therefore cutting taxes should expand the economy.
That this theory has not played out in the real economy should make us leery. But the bigger issue is that much of the empirical basis of this work is on the effects of cutting corporate tax cuts in high tax economies – not what should be done once corporate tax levels have been made competitive. This is an important distinction, because otherwise the theory would point to 0% tax rates across the board.
So further tax cuts have neither a strong theoretical foundation, nor any recent evidence of real impact on job creation and productivity. Further, they could be counterproductive. As Jim Stanford of the Canadian Auto Workers notes, by choosing to allocate tax revenue back to corporations and consumers rather than to productive investments in infrastructure, we actually cost ourselves the opportunity to create 50,000 new jobs.
Hence the focus on corporate tax cuts fails to address the most important issues related to the future of our Canadian economy. Our key issue is not corporate profitability, or even driving economic growth. Rather, it is productivity. Canadian labour productivity lags behind our American counterparts by 25 per cent, and over the last decade ranks second last amongst G7 countries and far behind most comparable EU countries. A decade of large corporate tax cuts has not improved this; it’s unlikely another decade of them will either.
So perhaps some tweaks to the tax code, such as targeted subsidies and tax incentives for productivity-enhancing investments in new technologies, research and development and job creation activities, and maybe even tax cuts aimed directly at small and medium sized businesses, could be beneficial. However, implementing blanket tax cuts for large corporations, when we already have a competitive tax regime, is not the answer.
What will attract both domestic and foreign investors in the future is a productive and highly skilled workforce, and further incentives for long-term investments that boost productivity and our ability to compete. This means that ongoing investments into education, retraining and infrastructure (both digital and physical), are the keys to building a Canadian economy able to withstand the pressures and uncertainties of a hyper-competitive global marketplace – rather than continually lowering tax rates to pad corporate profits. If we’re serious about competing with the world then Canadians need to look beyond political and economic rhetoric and focus on the real issues and actions that can help facilitate the ongoing development of a highly-skilled, flexible workforce that positions Canada as a place to invest.
Dan Herman is a PhD student at the Balsillie School of International Affairs and a Senior Associate at the Ottawa-based Institute on Governance. You can follow him on Twitter @danherman