Hot! Before we can fix our economy, we must fix government

TheStar.com – Opinion/Commentary – Former parliamentary budget officer Kevin Page says we must repair our institutions before we can fix the economy.
Jan 18 2014.   By: Kevin Page

The American educator and philosopher John Dewey once remarked that “we only think when we are confronted with a problem.” As a great procrastinator, that quote has always resonated with me. As did another Dewey remark: “We can have facts without thinking but we cannot have thinking without facts.”

As we set out into 2014, we are confronted with a host of complex economic problems we can no longer ignore. And yet, in the face of larger societal challenges the solutions may be especially difficult to see. Debate and vision are suffering in our nation’s capital. Trust has been eroded. Secrecy and control have become the new normal, at least for now. As other commentators have written, we face the death of evidence: the facts we need to solve our problems are too often ignored or actively obscured.

The Canadian economy is in trouble. GDP growth has been declining since the highs of 2010 (4 per cent) and now stands at 1.8 per cent. This is weak given the economy is operating well below its capacity. Weak growth makes it difficult to raise our labour market participation and employment rates.

Our productivity growth, too, is weak. Since 2000, Canada’s business sector labour productivity averaged a meagre 0.8 per cent growth per year, about half the pace we saw over the 1981-2000 period. That’s particularly worrying when you consider that productivity is a key determinate of living standards.

Monetary policy appears to have strengthened asset prices more than it has strengthened economic growth. Our bank rate has been stuck at 1.25 per cent since 2010. Ottawa has gone into austerity mode in an attempt to reduce a small structural deficit it created with large cuts to the GST and corporate income taxes. This has only added fiscal drag to an economy that is already limping.

Income inequality is increasing in Canada and international comparisons put us well behind many European countries. The richest 1 per cent in Canada earns about 10.5 per cent of income, up from about 7 per cent some 30 years ago. About 9 per cent of our population lives in poverty, including some 570,000 of our children. Without aggressive action, these numbers are bound to get worse, not better.

Canadians have also added a lot of debt to our balance sheets. The ratio of household financial liabilities to household disposable income now sits at a record high 166 per cent, compared to 110 per cent in 2000. And as Canadians try to pay off this increased debt, inevitably consumption will further decrease, adding to more economic drift or stagnation.

So how do we get out of this dangerous spiral? One thing is clear: we cannot overcome the pressing economic challenges before us without the concerted effort of our government institutions. And yet in the wake of a year of scandal, those institutions are more distracted and less able to help than ever before.

The Prime Minister will not stand accountable for the actions of his own office. The Senate has lost trust over a spending scandal. The House of Commons has lost its power of the purse. Members of Parliament are forced to vote on appropriations without the information they need. The public service has become dangerously good at avoiding transparency and accountability.

Without rebuilding — and rebuilding trust in — the bodies charged with protecting our prosperity and democracy, we will continue to drift aimlessly, to put off the thinking we must put off no longer.

This is both possible and necessary. As we approach the 2015 federal election, let’s get our political leaders to commit to an open conversation about the state of our institutions and what must be done to equip them to meet the challenges ahead. This will require a level of transparency that is foreign to our government, as well as the kind of frank discussion that has become all too rare in our politics. But the best tool we have to collectively address the problems we face is now broken, and together we must get to the bottom of how to fix it.

Repairing institutions is a famously difficult project. It depends on those living within a particular paradigm to see beyond what they know and the system in which they have thrived in order to design a new one. As the American novelist Upton Sinclair said: “It is difficult to get a man to understand something when his salary depends on his not understanding it.” Difficult, yes, but not impossible.

Conservative MP Michael Chong, for instance, demonstrated with hisdemocratic reform initiative last year that it’s possible for parliamentarians to engage in thoughtful reflection about their role in a changing world. Let’s not stop there. Let’s have a national discussion on the Senate. Let’s have a discussion on our electoral system and the system that MPs use to scrutinize spending.

The time has come to launch a royal commission on the state of our institutions. We are now confronted by problems we can no longer ignore, and we cannot think up solutions without the facts.

Kevin Page is the Jean Luc Pepin Research Chair at the University of Ottawa. He was Canada’s first parliamentary budget officer.

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