Social Policy in Ontario

Canada’s election and the return of activist government

Posted on September 19, 2015 in Governance Debates

—

TheStar.com – News/Canada – In the new world of stagnant economies, Stephen Harper’s view that government need only cut taxes is out of date.
Sep 18 2015.   By: Thomas Walkom, National Affairs

Activist government is back in vogue.

Canada’s opposition parties understand this. That’s why Justin Trudeau’s Liberals are touting a plan that would see the federal government incur more than $20 billion in new debt to build public infrastructure.

It’s also why Tom Mulcair’s NDP is promising government-funded child care, an ambitious scheme that, if it works, would be the most important federal social program since medicare.

Neither pledge would have been out of place a few decades ago. Indeed, a few decades ago even Canada’s Conservatives were promising a national child-care program.  But during the interval, the idea of bold government activism fell into bad odour.

Since the time of Margaret Thatcher, the prevailing orthodoxy has held that government’s best option is to get out of the way and let the private sector work its magic.  For a while this neo-conservative strategy seemed to work.
But now we are in a different economic world, where growth is sluggish and free markets insufficient.

Corporations still make profits. But because demand for the goods and services they produce is so weak, many don’t reinvest.

Canadian companies are sitting on billions of dollars worth of what former Bank of Canada governor Mark Carney famously called dead money.

The current slump is not as severe as the crisis that gripped the world during the 1930s. But it is a crisis.

In this new context, Prime Minister Stephen Harper is singularly out of date. That doesn’t mean his Conservatives won’t win the Oct. 19 election. Out-of-date ideas can have great staying power.  But it does mean that he’s yesterday’s man.

When he came onto the political scene in the late 1980s, Harper was on the cutting edge of what was then the new conservatism.  Like Thatcher, he was determined to shrink government.  In Harper’s view, a properly sized government would get out of the business of funding social programs like medicare.  Its main economic task would be to remove anything, including tariffs and regulations, that interfered with the free market.

In those years, the young Stephen Harper was not Canada’s only neo-conservative politician. Under Jean Chrétien and Paul Martin, the federal Liberals too adopted the new orthodoxy of free trade, low taxes and balanced budgets.  In fact, it was the Liberals who, in 1995, obligingly took apart much of the welfare state they had helped create.

The effects were dramatic. In 1995, federal spending accounted for 22 per cent of Canada’s gross domestic product. By 2006, it had dropped to 15 per cent.  As spending on social programs like welfare and employment insurance fell, the Chrétien-Martin Liberals used the resulting surpluses to lower personal and corporate taxes. That, in turn, made it politically more difficult to introduce new spending programs.

Neo-conservatives referred to this as starving the beast.

By the time Harper came to power in 2006, the beast was already on a severe diet. The Conservatives merely continued the process, offering more tax breaks and then trimming spending to pay for them.  Figures from the Organization for Economic Co-operation and Development show that tax revenues raised by all levels of Canadian government fell from 43.7 per cent of gross domestic product in 1997 to 38 per cent in 2012.

Political imperatives and the recession of 2009 prevented the government from turning off the spending taps altogether.  In the face of demands from Ontario’s crucial auto industry, Harper’s pledge to eliminate corporate welfare also fell by the wayside.

But the Conservative prime minister did his best. Even military spending as a percentage of GDP fell.  Margaret Thatcher would have been proud.  But Thatcher is dead. And quite possibly Thatcherism is too.

Put bluntly, the needs of capitalism have changed.  Business remains remarkably productive. But it cannot translate that productivity into profit unless customers have the wherewithal to buy its goods and services.  Right now, too many don’t.

The world economy is limping. Europe is in a mess. Japan is stagnant. The U.S. recovery is slow.  The new miracle economies that the world had been counting on, like Brazil, are no longer quite so miraculous.  Even China, with its strange amalgam of communism and cutthroat capitalism, is faltering.

Most countries have been relying on their central banks to stimulate the economy by cutting interest rates. But with interest rates now at or near zero, there is little room to act.  Increasingly, government is being called on to pick up the slack.

Mainstream fiscal conservatives, such as former Bank of Canada governor David Dodge, say the government should fret less about deficits and instead spend on useful infrastructure.  Even the normally tight-fisted International Monetary Fund wants advanced nations to loosen the purse strings.

A paper released this week by the Ottawa-based Centre for the Study of Living Standards and co-authored by former TD Bank chief economist Don Drummond concludes that market forces alone cannot get the economy out of its funk.  Government, the paper says, must play a more active role, through measures such as investing in public works, improving access to child care and offering direct grants to promising businesses.  “The continuation of the status quo should not be acceptable to Canadians,” the authors write.

In this world of stagnant economies, social programs too need to be rethought.  Private employers are no longer willing to provide benefits to their workers. Workplace pensions in particular are a thing of the past.  So is job security.

The businesses of the 20th century invented just-in-time inventory as a way to cut costs. The businesses of the 21st century want just-in-time workers — part-timers and contract employees who can be hired or jettisoned at will.  But these on-again-off-again workers need to be housed and fed during the periods when their labour is not needed.

Cue the state. Only it has the capacity to keep the workforce intact and healthy during a prolonged economic slump.

Put simply, if modern capitalism is to thrive, the social programs that were taken apart 20 years ago need to be reinvented and reinstated.  In a very cautious way, the opposition parties get this.

The Liberals and New Democrats are hardly firebrands. But unlike Harper, both Mulcair and Trudeau recognize that government must do more than cut taxes if the country is to make it successfully through this slump.

Trudeau would change the employment insurance system marginally to provide more jobless Canadians with benefits.  Mulcair is promising to spend more federal dollars on health care.  Both Trudeau and Mulcair would talk to the provinces about enriching Canada Pension Plan benefits for retirees.  Both would lower the age for receiving old age security payments back down to 65.

The two do joust over whether Ottawa should incur temporary fiscal deficits in order to get the economy moving again — with Trudeau saying yes and Mulcair no.  In an effort to monopolize the anti-Conservative vote, each accuses the other of being a charlatan and poltroon.

But in spite of their differences, both recognize something Harper does not: Government can and should do more than just keep the streets safe and the borders secure.  It is an old-fashioned view. At this point in history, it is also very, very modern.

< http://www.thestar.com/news/canada/2015/09/18/canadas-election-and-the-return-of-activist-government-walkom.html >

Tags: budget, economy, globalization, ideology, standard of living

This entry was posted on Saturday, September 19th, 2015 at 2:53 pm and is filed under Governance Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.