The social cost of recessions

Looking for a sign the recession is upon us? Check out your closest fast-food joint.

Last week, virtually alone among corporate America, both Burger King and McDonald's reported stronger than expected sales.

So what, you say. This is a good omen; people are spending again, just like presidents and prime ministers are asking them to.

Anne Golden knows differently.

The CEO of the Conference Board of Canada (one of the country's chief economic forecasters) and the former head of the United Way of Toronto during the turbulent '80s, Golden sees the upsurge in burger sales as just another sign that ordinary folk are battening down the hatches.

For those at the margins, she says — and this can be anyone from those truly down on their heels to young homeowners trying to get by with an expensive mortgage — "one of the first things they do is cut expenses, and that means eating less nutritional food."

It's a pattern that began in the last big recession, 1980-82, when food banks first became a fixture in Canada, and has continued through virtually all the downturns since: 1991-92 and 2001-03.

Golden has her own list of the social costs of recession, "the things we think of as important building blocks."

These include university and job-training courses being put off as students say what's the point; dental care being postponed when company plans are lost because of layoffs; extra programs for the disabled or disadvantage being lost in the shuffle; and the family stress of having to cope with mortgages and car payments, or grown children moving home, when the jobs aren't there.

Others have their lists: suicide rates, depression and family violence are all said to increase during tough economic times. So, some say, are property and violent crime.

Some of these increases are probably urban myths, or at least deserve more nuanced analysis, though Canada's suicide rates did spike in 1981 and 2001. So did rates of spousal homicide, even as the overall rate has been on a steady decline since the mid-1970s.

But as Golden points out, the social cost of recession "does not necessarily show up right away."

Cops and robbers

Beware a possible crime wave, the New York Times warned recently, citing experts who noted robberies and murders followed hard on the heels of similar downturns in the 1970s and '80s, including 1987, when the stock market crashed.

The British press has been all over this topic as well, thanks to a leaked Home Office memo earlier this month that predicted violent crime could grow by 20 per cent based on what occurred during the 1991-92 recession. 

But Canada is different, observes noted University of B.C. economist John Helliwell, who has spent most of the past decade studying the concept of a nation's social capital.

Because of our social safety net, he says, referring to Employment Insurance, welfare and a host of other social services, Canada tends to weather these economic storms better than many other industrialized countries. The numbers bear him out.

According to Statistics Canada, property crime has been on a decades-long decline, with the most recent plunge, a two per cent drop per year, beginning in 1991 in the midst of that most recent recession. Violent crime rates began dropping in 1993 and have continued to fall for the past 15 years seemingly regardless of economic turmoil.

Indeed, a 2006 study in the journal Criminology found that rates for murder, rape and assault were unaffected by changes in the business cycle. And while there is some correlation between property crimes (robbery, auto theft etc.) and economic conditions, the real conclusion there is that property crimes go up when inflation does and you can find a buyer for all those pilfered Honda Civics, copper tubing or stolen manhole covers sent to China to be melted down.

That is not the case today, when the prices of everything are declining, and that is also why crime rates dropped so dramatically during the Depression in the 1930s, compared to the Prohibition-era Roaring '20s.

Recessions can have a "kind of cleansing effect in getting people off the super-boom mentality," which can have its own inequities and social upheaval, Helliwell says.

For governments, he says, the trick is to try to keep people from shutting down psychology when it comes to investing in the future, and to not turn off the social spending too quickly as the economy takes off again, which he says was probably the case in the early 1990s.

The 'former middle class'

Recessions, of course, produce their own sets of winners and losers depending on what their underlying factors are.

This one is bound to cause increased anxiety among retired Canadians and those approaching that mark because of the stock market havoc it has created in pension plans RRSP holdings. It may also be the first recession to hit Canada in the midst of profound demographic change, when the sons and daughters of the baby boom are just entering the workforce and face the prospect of being the last in and the first off the job train.

If you have a secure job, mind you, recessions can be consumer heaven, which may well explain the huge crowds these past weekends jamming the big shopping plazas, at least in Toronto. Not yet December and retailers are already offering 40 per cent off in some cases so they are not stuck with high inventories.

The recession in the early 1980s witnessed the creation of this country's first large-scale food bank since the soup kitchens of the Depression. It was in Edmonton, begun by a young university graduate, now a Liberal MP, Gerard Kennedy. (He subsequently took the idea to Toronto, establishing the Daily Bread Food Bank, which still operates today.)

A studious sort, Kennedy did a survey of those using the Edmonton program on a regular basis and was surprised by what he found: it wasn't just inner-city poor who were turning up at their local churches to stock up on the week's groceries; the largest users were (formerly) middle-class families who were trying to hold on to their homes and cars as long as they could and had to find economies somewhere.

That downward spiral may be happening again today, both in the U.S., where home foreclosures are rampant in certain states in particular, and also in emerging economies, such as India and China, suggests New York Times columnist David Brooks.

"In this recession, maybe even more than other ones," he writes, "the last ones to join the middle class will be the first ones out. And it won't only be material deprivations that bites. It will be the loss of a social identity.

"These reversals are bound to produce alienation and a political response. If you want to know where the next big social movements will come from, I'd say the formerly middle class."

Welfare

From her perch at the Conference Board, Anne Golden says she is aware of layoffs and forced retirements of middle managers and professionals in a variety of areas already and that more are certainly on their way.

A recent survey by Mercer Ltd. consultants found that 23 per cent of Canadian employers are planning to reduce their staffing needs in the near future. The Paris-based Organization for Economic Co-operation and Development just said that the industrialized world is facing something like eight million job losses over the next two years.

Many of these people will end up on welfare, which is a social cost of recession unto itself.

In a report to Toronto city council on the recession of the early 1990s, for example, city officials noted that this particular downturn was the worst in the post-war period, with the unemployment rate in the country's largest city almost tripling to 12 per cent.

From 1989 to its peak in March 1994, welfare caseloads rose from 38,000 to 126,500. By the mid-1990s, the Canadian economy was on a tear and governments were doing their utmost to get people off social assistance.

But even by 1999, welfare caseloads in Toronto were still at 75,000, part of a historical pattern that began in the 1970s, when each successive economic downturn brought with it a new wave of people whose jobs were no longer there to go back to.

In the case of Toronto, this new welfare wave included more older individuals, more formerly blue-collar workers, more new immigrants and a noticeable increase in those who had been educated outside the country and lured here by the pre-recession boom.

This wave also brought with it an often bitter political fight between those on welfare, who were given considerable educational and child-rearing help to get themselves off the rolls, and the so-called working poor, who had to make do on their own.

These antagonisms played themselves out in party politics and in a growing number of social tensions in slowly gentrifying neighbourhoods. Difficult to quantify, they too are part of the social costs of recessions.