Liberals face their own economic challenge

Posted on December 26, 2008 in Debates, Governance Debates, Social Security Debates – Opinion – Liberals face their own economic challenge
December 26, 2008. David Crane

The Liberals have a new leader, Michael Ignatieff. But this is not enough. The once-proud political party is today a pale shadow of its former self and needs to rethink what it stands for. The Liberal party needs new ideas as well as a new leader.

While the most immediate concern is how to deal with next month’s federal budget, the bigger challenge is to define what the Liberal party will stand for in the global society of the 21st century.

Over the next decade and beyond, the world will be transformed by globalization and the shift of economic power and wealth from the West to the East, continuing and rapid technological change, the need to address climate change before it is too late, and competition for energy, mineral resources, food and water.

Where will Canada fit in this world and how will we prosper at a time of intensifying competition for jobs and growth? As a hint of what lies ahead, a Chinese company, BYD, has just unveiled the world’s first mass-produced plug-in hybrid car, two years ahead of GM’s planned Volt.

The ability to provide a 21st-century agenda for a successful Canada is critical if the Liberals are to appeal to more voters, attract more members, recruit better candidates and spark more grassroots funding. Attacking the Harper government is not enough.

As prime minister, Jean Chrétien succeeded in restoring Canada’s fiscal health and putting Canada on the path to sustained budget surpluses along with tax cuts. This was a major accomplishment. He also boosted Canadian spending on fundamental science and higher education. But he was not interested in recharging the Liberal party as a force for broad policy leadership

His successor, Paul Martin, displayed an enthusiasm for many different policies, but seemed unable to set priorities. As leader of the Opposition, Stéphane Dion was fixated on a single idea, a carbon tax, which was a good idea if clumsily presented. But he, too, lacked a broader view of the challenges facing the country.

To start, Liberals need to redefine the role of the state in the 21st century. What is it that we should expect government to do, on its own or in partnership with business, labour and NGOs?

The global financial crisis has demonstrated, at enormous human and economic cost, the failings of the ideology that has dominated policy-making for the past generation. That ideology is grounded in the Thatcher-Reagan revolution, which celebrated low taxes, deregulation, small government and the minimalist state. It is now abundantly clear that markets are not all-wise.

A key role of the state must be to set the rules of the game and vigorously enforce them, not rely on a blind faith in the “invisible hand” of market forces. The cost of light-touch regulation of financial markets is clear. But this applies in other areas as well, from climate change, safe workplaces and land use to clean water and food safety.

In the free-market world, social policies were criticized as unaffordable or ineffective given the faster pace of change. Government polices to boost innovation were denounced as meddling and inefficient interventions in picking winners and losers.

But the state is now seen as a necessary force to help countries achieve collective prosperity and good jobs. Globalization and rapid technological change are big reasons why. We are now moving to a new era of the active state.

The shift to an active state should not mean, however, a return to bigger government, or the abolition of the role markets and competition can usefully play.

But the worst crisis since the Great Depression certainly points to the need for more active government, with a clearer role in helping individuals cope with globalization, providing appropriate regulation and ensuring that businesses can capitalize on opportunities for the future economy.

A challenge for the Liberal party is to demonstrate that it recognizes the fundamental importance of an innovative, entrepreneurial economy where the state is an active and supporting partner. For example, that Liberals should champion government that is more proactive in facilitating innovation and entrepreneurship to create the businesses and jobs of the future. It also means stronger support for city-regions, which are crucial engines of innovation and job-creation.

Markets do a poor job, by themselves, of supporting the kind of higher-risk, long-term investment that leads to new technologies and new industries. Nor are markets reliable in addressing long-term societal goals – such as dealing with climate change – unless governments use their powers to create a different market through regulation and incentives.

Good social policy is also important. As Peter Mandelson, Britain’s Secretary of State for Business, said recently, some countries have fallen into the trap of using the share of government spending in the economy as a measure of freedom or efficiency.

“But where that spending is done well it can actually be a measure of the extent to which a state has adapted to the fundamental reality of living with rapid global economic change,” he said, arguing that “a society that leaves individuals to cover the often catastrophic costs of health care or unemployment will spend less collectively.” But “it will be an insecure society, and insecure societies are not societies equipped for long-term success.”

Canadians need a new unifying set of ideas that show how to build a prosperous, just and sustainable society in a world where the old ways are collapsing.

The question is whether the Liberals are capable of rising to this challenge. If they can’t, who needs them?

David Crane is a commentator on economic issues. He can be reached at

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