On the issues: The economy

Is Canada’s economic consensus fracturing?

Stephen Harper wouldn’t be much of a politician if he didn’t desire a majority government, but thus far in the election campaign he’s dared not admit as much—on the theory, some believe, that the prospect would scare away voters who are less than sold on his overall agenda. Perhaps just as scary to Canadians, however, are the implications of the ongoing meltdown on Wall Street. And while he studiously avoided the M-word, Harper was clearly playing to those fears in Calgary this morning, where he warned that a “weak Parliament [would] put our economic stability at risk.” The opposition parties are, he said, “articulating a direction for the Canadian economy that would be totally different than this government, and that has me very worried obviously about the pressure that they could bring to bear.” Only “a stronger mandate” for his Conservatives can thwart their designs, he stressed.

One can understand Harper’s concern; by their very nature, minority governments are less able to impose their will. And historically, when the New Democrats or the CCF have held the balance of power, they have indeed “pushed the government more to the left in terms of regulation,” says Stephen Clarkson, professor of political economy at the University of Toronto. But the Tory agenda is hardly brimming with bold new ideas waiting to be kyboshed by an emboldened opposition. Just the opposite. The government, Harper claimed today, is “ahead of plan in keeping our spending focused, our budget balanced and our taxes down to protect the living standards of Canadian families at a time of global economic uncertainty.” It’s precisely the brand of fiscal prudence to which the Liberals lay claim in their election platform, which plays up Jean Chrétien’s and Paul Martin’s record of personal and corporate tax cuts and debt repayment, which, they add, fixed “years of Conservative deficits and economic mismanagement.” Last week, Dion went so far as to promise never to put Canada into deficit, regardless of the circumstances.

Indeed, Clarkson suggests the most intriguing aspect of Harper’s warning is the implication that the longstanding consensus between Canada’s centre-left and centre-right parties “on the general direction of the economy and how it should be managed” has fractured—that the Liberals are, contrary to their assurances, planning to march away from their fiscally conservative legacy towards the left. There’s little evidence to support it, and it could all easily be dismissed as election rhetoric, but these are very interesting economic times, Clarkson observes. The Canadian war of words is playing out against the sudden outbreak of interventionism currently infecting the Bush administration, most notably its proposed US$700-billion bailout plan under which the government would actually buy the bad mortgages that underpin much of Wall Street’s current crisis. “If the neo-cons in Washington have suddenly become socialists in the last week,” says Clarkson, then perhaps we really are “shifting to a different—to use the dreadful word—paradigm.”

Even if we are, the implications are very unlikely to become apparent before Oct. 14. So Canadians will still have to make up their minds between staying the course and risking it all on the party that charted it in the first place. In either case, neither Clarkson nor Don Drummond, chief economist at TD Bank Financial Group, is particularly optimistic we can protect ourselves from the Wall Street fallout. The Canadian economy declined “pretty much in parallel” with the American one in the early 1980s and early 1990s, he notes. “We’ve got three quarters of our exports going to them; 30 per cent of our corporate funding goes to them. As they pull down world growth, our commodity prices have been hit. There’s so many elements where we’re directly affected.”

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