Inflation is expected to surge, again.
We can expect Canadian business leaders and policymakers to justify price hikes at the pump and elsewhere — quite correctly — on the war in the Mideast.
It’s an explanation that is intuitive, simple and, conveniently, out of their control.
It’s also incomplete.
The simplicity of this explanation ignores the equally disruptive and shadowy forces in the economy that have been jacking up prices and can be controlled — domestically and democratically.
Asset management corporations — think private equity firms and pension-backed mega-landlords — have been quietly consolidating huge swaths of the Canadian economy and making life more expensive.
The most visible effects can be seen in residential real estate. A recent study by University of Waterloo researchers found that the number of large, financialized landlords is growing. In the Greater Toronto Area, for example, firms are using algorithmic pricing tools to hike rents faster and more dramatically than other landlords — upwards of 44 per cent higher than other firms, or $670 more every month on average. Indeed, increasing rent is part of the strategy when snapping up residential rental properties.
Business tenants are also feeling the squeeze.
Asset managers now dominate office spaces, shopping centres and industrial parks.
According to a study by the worker and employer advocacy group Better Way Alliance, commercial rent for small business in Toronto has risen 142 per cent over the last five years, forcing firms to pass on those costs to customers.
Less visible, but equally inflationary, is the impact that private equity firms are having on consumers.
According to reports, there are now more private equity firms than McDonald’s franchises in North America, and they’ve set their sights on … practically everything. From insurance brokers to logistics firms to, disturbingly, the “care economy” snatching up nursing homes and daycare centres.
Unfortunately, private equity firms are seldom run as traditional businesses. Asset managers, instead, treat acquisitions — as the name suggests — like portfolio assets.
Their goal is not to grow a sustainable bottom line by investing for the long term, but to increase the value of the asset, usually within three to seven years, and then selling it at a higher price.
Homes become speculative investments; housing a family becomes a by-product of financial strategy. Canadian surgical centres and long-term-care facilities simply become dollar signs on a spreadsheet, assets to unlock financial value.
To “unlock value” typically means businesses in a firm’s portfolio are laden with debt, forcing a laser focus on financial returns, leading to inevitable price hikes as the business is prepped for sale.
Many firms choose to acquire businesses with long-term customers and obstacles that make it difficult for them to go elsewhere. Studies document that multiple acquisitions in the same industry — often small players — lead to price hikes within six months with no evidence of improved service.
It isn’t just that markets are being consolidated, it’s that asset managers’ focus on value extraction always leads to higher prices.
In the U.S., horror stories are common.
After the consolidation of dozens of small manufacturers, the motorized wheelchair market is now dominated by just two private equity behemoths, according to Mother Jones magazine. The result? Higher prices, longer wait times and reduced service for those most in need.
In Canada, veterinary clinics have been the canary in the coal mine.
Just three firms now own more than 600 vet clinics across the country, according to a CBC News report. And while branding of the clinics may not have changed, the rise in vet bills has, dramatically, forcing some people to give up their pets or skip appointments.
When inflation surged during the pandemic, governments were quick to offer rebates and boutique policy solutions. Now, as the Mideast war jacks up oil prices, policymakers have wasted no time removing the federal fuel excise tax.
At the moment, asset managers can feel confident that policymakers are looking elsewhere when they confront inflation. But just because inflation is, partially, driven by decision-makers in Washington and Tehran today doesn’t mean we can’t also address the structural issues within our economy.
That means using the tool kits that government do have — competition policy, consumer protection policy, tax policy and financial regulation — to confront the systemic forces that are making life unaffordable for many Canadians.
Only by deploying these tools can governments help Canadians reassert some control over their economic lives.
