Transatlantic Echo Chamber
Posted by Erin Weir under OECD, privatization.
March 19th, 2010
Comments: 1
The big news for Canadians from the OECD’s Going for Growth 2010 report was that we should privatize Canada Post. An article in the current issue of Maclean’s (pages 26 and 27), which does not (yet) seem to be available online, sheds some interesting light on that recommendation:
[Yvan Guillemette was] working for the C. D. Howe Institute, the prominent business-oriented think tank in Toronto, back in 2007, when it released a report called “Rerouting the Mail: Why Canada Post is Due for Reform.” And it was that report’s call for selling off the postal service that Guillemette imported unaltered into the OECD’s competitiveness blueprint for Canada.
“Here at the OECD,” he told Maclean’s, “we haven’t done a study of the postal sector or Canada Post.” Still, by having the OECD echo from Paris the case that impressed him back in Toronto, Guillemette at least revived the perspective of critics who see tackling mail delivery as a pressing economic challenge . . .
With national output well below potential, high unemployment, high carbon emissions and a soaring currency, it is beyond me why anyone would consider privatizing the post office to be “a pressing economic challenge.” However, Guillemette is obviously entitled to his opinions.
The broader issue is how the OECD formulates policy. If it has not studied Canada’s postal system, on what basis does it recommend privatizing Canada Post? Is the OECD so ideologically committed to privatization that it is happy to recommend selling any given public enterprise regardless of specific circumstances?
Since long before Guillemette went to work for the OECD, its recommendations have more or less been a repetition of the C. D. Howe Institute’s agenda: corporate tax cuts, deregulation, reducing Employment Insurance benefits, and eliminating (unidentified) inter-provincial trade barriers.
But whereas the C. D. Howe Institute is funded by corporate Canada, the OECD is funded by the Canadian government and other member governments to provide supposedly neutral policy advice.
Will the Loonie Own the Podium?
Posted by Erin Weir under BC, Olympics, inflation, interest rates, monetary policy.
March 19th, 2010
Comments: 2
The main question about this morning’s Consumer Price Index is whether it will propel the Canadian dollar to parity with the American dollar. Higher inflation would increase the chances of our central bank raising interest rates sooner rather than later. Higher interest rates would make the loonie a more attractive holding for international financiers.
In fact, today’s figures show the annual inflation rate falling from 1.9% in January to 1.6% in February. With the Bank of Canada’s target range running from 1% to 3%, these figures hardly make the case for raising interest rates.
Perhaps more noteworthy was core inflation edging up from 2.0% to 2.1%. The Bank of Canada uses core inflation as a policy guide because it excludes volatile prices like food and gasoline.
Some people watch the exchange rate like an Olympic sport, cheering the loonie higher out of patriotism. (This patriotism is misguided because an excessively high Canadian dollar hurts our economy.) For these Olympic-style enthusiasts, higher core inflation may appear to bode well for higher interest rates and hence a higher loonie.
Ironically, core inflation was higher largely because Canada hosted the real Olympics in February. As a result, Statistics Canada reports that the price of traveller accommodation in British Columbia shot up 64%.
Thanks to the Olympics, B.C. definitely owned the podium in terms of inflation. Between January and February, the overall price level rose more than twice as fast in B.C. as it did nationwide.
Hotel rooms are part of the Consumer Price Index’s “recreation, education and reading” component. Nationally, the entire increase in this component over the past year occurred in February.
Traveller accommodation is included in core inflation because its price is not normally volatile (except for seasonal changes, which do not affect the annual rate.) However, higher hotel-room prices last month compared to February 2009 are clearly transitory. Therefore, in setting future monetary policy, the Bank of Canada should not put much stock in February’s slightly higher core-inflation rate.
It is difficult to predict how aggressively the central bank will raise interest rates or where speculators will push the loonie. But today’s Consumer Price Index figures provide no compelling justification for the higher interest rates that some speculators rightly or wrongly anticipate.
McGuinty, the CCPA and the HST
Posted by Erin Weir under HST, Ontario, corporate income tax, liberals, taxation.
March 17th, 2010
Comments: 2
Ontario Premier Dalton McGuinty has taken a shine to the Canadian Centre for Policy Alternatives (CCPA). Over the past month, he and other Liberals have repeatedly cited it.
Indeed, McGuinty invoked the CCPA’s name four times in the provincial legislature on February 17. However, he first did so the day before that:
Ms. Andrea Horwath: Can the Premier explain why, when so many people are struggling, his biggest priority is a $4.5-billion tax cut for some of Ontario’s richest corporations?
Hon. Dalton McGuinty: There are two independent reports I want to recommend to my honourable colleague. One is from Jack Mintz. He works out of Calgary. He tells us that our package of tax reforms will lead to nearly 600,000 more jobs over the course of the next 10 years.
Now, my colleagues don’t appreciate Dr. Mintz, but I would then instead refer them to a report prepared by the Canadian Centre for Policy Alternatives, and I think the title says it all. It says, Not a Tax Grab After All: A Second Look at Ontario’s HST. I would strongly recommend both of those reports to my honourable colleagues. Our tax reforms, in fact, cost the treasury billions of dollars over the first two years.
McGuinty is obviously incorrect in suggesting that the CCPA supports his whole tax package, which includes a deep corporate income tax cut. The CCPA has published many pieces opposing corporate tax cuts (including a few by yours truly).
The more specific claim, which the Liberals have also made in campaign literature, is that the CCPA supports the Harmonized Sales Tax (HST). The following letter from the CCPA clearly refutes that claim:
March 1, 2010
Glen Murray, MPP
Toronto Centre
Rm. 330, Main Legislative Bldg
Queen’s Park
Toronto, ON M7A 1A4Dear Mr. Murray:
Your campaign pamphlet for the recent Ontario by-election has recently come to my attention (see attached).
It claims that the Canadian Centre for Policy Alternatives supports the Ontario government’s Harmonized Sales Tax (HST) package.
This is incorrect for the following reasons:
It’s Not What You’ve Got, It’s What You Do With It
Posted by Jim Stanford under India, development.
March 16th, 2010
Comments: 3
I recently had the joy of spending a couple of weeks in Kerala, the little socialist state at the bottom tip of India. Apart from exquisite food, friendly people, beautiful jungles, and welcoming climate, Kerala’s greatest asset of course is its astonishing record in producing a literate, healthy, politically engaged society — all on the strength of a very modest GDP.
I am not in the camp of those who claim that GDP doesn’t matter, or that “growth” is somehow the enemy. Economic development very much requires being able to produce more useful goods and services (more value, not more flat screen TVs and Hummers). And of course, we must tailor our output to respect the environmental constraints around us; that doesn’t mean “doing less,” it means doing different things.
But what you do with your GDP matters just as much as how much of it you produce. And the “Kerala model” (as it is known in the development literature) shows very much that pro-actively shaping the nature of growth (massively priveleging things that make human beings directly better off) is essential to human progress.
Below is my column on Kerala which ran in the Globe (complete with a sex joke at the beginning!). I got a lot of reaction, much from Indian expats who seemed glad just to have something decent reported about their homeland. Also, I’ve added a table comparing GDP and HDI rankings. There’s a correlation between GDP and HDI (which is why it’s totally wrong to say that GDP doesn’t matter). But there’s huge variation around that correlation, too (with Kerala and Cuba being two of the outliers), indicating that the sex threapist’s advice is very relevant indeed.
A couple more tidbits on Kerala before I get to the column: this was not the first place in the world where Communists came to power via the ballot box. But I think it’s the first place they weren’t then forcibly removed. That wasn’t for lack of trying: Jawalharu Nehru (to his discredit) actually used emergency powers to eject the first Communist government from office in 1959 — after setting the stage with some of the same destabilization tactics used by the CIA in Chile in 1973. But the Communists, after regrouping, were able to win back office after a few years, and they’ve been in office (alone or in coalition) pretty much ever since. Their emphasis on social development, plus their reputation as the most transparent and least corrupt state government in India, has maintained their popular support.
The current economic policy is a very intersting amalgam of efforts to entice private investment, combined with a still-diverse state-owned production sector (including everything from cashews to hotels to a new plant building railway cars), combined with support for almost pre-capitalist small-scale production in workshops and farms. Massive supports for farm communities (including labour laws which prohibit the worst kinds of rural servitude common elsewhere in India) have been the most important reason for Kerala’s low poverty rate.
OK here’s the column now…
Peddling GHGs
Posted by Marc Lee under BC, climate change, resources.
March 16th, 2010
Comments: 1
My colleague Bill Rees likes to say that fossil fuels are a powerful hallucinogenic drug. We are all addicted to cheap and abundant fossil fuels, and so have reshaped our economy and society in fundamentally unsustainable ways.
In a recent post, I highlighted some research that breaks out of the box of counting emissions only where they occur (the standard National Inventory approach) and thinking about trade impacts. There are many embodied GHGs in the goods and services we consume that are counted in the tallies of another jurisdiction, and the Davis and Caldeira study is an example of sorting out emissions based on who is doing the consuming. Davis and Caldeira find that Canada is a net exporter of GHGs. As an “energy superpower” this makes us different from the US and Europe, who a major net importers of GHGs (with the argument that they have “outsourced” a large chunk of the emissions associated with their consumption).
This got me thinking about how much GHG emissions are embodied in our exports that are consumed elsewhere (a lifecycle analysis from the producer perspective). For a province like BC, with its spanky, clean, green image, there is already a contradiction between stated climate action objectives and the historical (and ongoing) industrial policy of resource extraction. Most of the GHGs associated with fossil fuels are not from the extraction and processing stage, which is large enough, but their downstream combustion.
When it comes to law and order, we have learned not to crack down on the users of drugs, but focus our efforts on the dealers. So what if it turns out that beautiful BC is running the resource economics equivalent of a meth lab?
As a baseline, consider that BC’s official greenhouse gas emissions totaled just over 63 million tonnes of carbon dioxide equivalent (63.1 Mt CO2e, to be geeky about it) in 2007, the last year for which we have data. Emissions from extraction and processing of fossil fuels were almost 13 Mt of this total. I was able to get export volume data from Statscan for both coal and natural gas, and then multiplied these volumes by emission factors from BC’s GHG inventory report to estimate downstream emissions (data for natural gas go back to 1980, whereas a break in the coal dataset meant that I only got 2008 and 2009 data).
For natural gas combusted in the US, BC was the source for 52.7 Mt CO2e in 2008. Interestingly, that is down from an all-time high of 73.8 Mt in 1998, though I suspect that interprovincial exports to Alberta may make up some or all of the difference. Coal exports led to another 52 Mt of emissions elsewhere in 2008. So bottom line for BC fossil fuels is 105 Mt CO2e in 2008; exports of these two commodities alone led to emissions elsewhere that are 166% larger than BC’s overall emissions within our borders, and about eight times the BC emissions associated with getting those fossil fuels to market.
So what’s an ethically minded crack dealer to do? The standard industrial growth model digging it out and shipping it to the US or Asia needs to broken. For starters, the government should reverse its recent approval of a natural gas processing plant in the Northeast that will add more than 2 Mt to BC’s domestic inventory, and 16-18 Mt of downstream emissions.
The good news is that these resources are not going anywhere, and will only be worth more as time goes on. So there is no reason why we should not dramatically slow down coal mining and oil and gas extraction – until some point when we can sequester the emissions from their combustion. This technology (aka carbon capture and storage) is already out there and is poised to become widespread over the next couple decades. Until then, however, we should think the unthinkable and consider leaving those resources in the ground.
Federal Budget Redux
Posted by Erin Weir under federal budget, media, taxation.
March 13th, 2010
Comments: none
In the last couple of years, Relentlessly Progressive Economics delivered detailed analysis the evening after the budget by bloggers who had been in the lock-up. Last week, those of us who were in Ottawa dropped the ball. However, Marc picked it up by assessing the budget remotely from Vancouver.
My main excuse is that, after drafting USW’s press release, I had to go do TVO’s post-budget panel. My other excuse is that there was actually not much new material in the budget to analyse. Indeed, the TVO panel ultimately degenerated into an argument between Andrew Coyne and me about whether Saskatchewan should join TILMA.
While it was not a very dramatic budget, and although Andrew Jackson and Toby have since posted some excellent commentary, I think that a few elements of Budget 2010 warrant further attention.
Shrinking Government
Continuing previously announced stimulus will keep federal program spending at 15.6% of Gross Domestic Product (GDP) in the coming fiscal year: 2010-11. However, the Conservatives envision squeezing it down to 13.2% by 2014-15.
That is modestly above the 12.1% spent by the Liberals around 2000. But looking back before the late 1990s, 13.2% of GDP is the lowest level of federal program spending since 1949.
Furthermore, in 2000, the government was also paying more than 4% of GDP as interest on the national debt. Despite the hysteria surrounding current deficits, Finance Canada projects that debt-servicing costs will increase from 2% of GDP today all the way up to 2.1% in 2014-15.
So, total federal expenditures (programs plus debt servicing) will be 15.3% of GDP, in line with recent lows and a little below 1950. But even with expenditures at rock-bottom, the budget will not quite be balanced in 2014-15.
Why? Because federal revenues will be even smaller: 15.2% of GDP, the lowest since 1963-64. Of course, total federal revenues now include higher Employment Insurance (EI) premiums. But Finance Canada’s definition of “tax revenues,” which excludes EI and some other revenues, will be only 12.2% of GDP.
The budget boasted, “Canada’s federal tax-to-GDP ratio is at its lowest level since 1961.” That claim is based on Finance Canada’s Fiscal Reference Tables only going back to 1961. The Historical Statistics of Canada tell an even more extreme story: 12.2% of the economy is actually the lowest level of federal taxes since 1940! Read more »
Goofy Oil-Industry Advocacy
Posted by Erin Weir under Alberta, big business, media, resources.
March 13th, 2010
Comments: 1
The Alberta government is reversing its modest increase in conventional oil and gas royalties. Albertans will now receive an even smaller fraction of the value of their resources. The saving grace is that the provincial government did not cut royalties on the oil sands, which are projected to provide more revenue than conventional reserves going forward.
Corporate executives welcomed Thursday’s announcement. Oil and gas companies will enjoy even higher profits given lower royalties, so their response was logical.
I was more struck by the strange comments from the industry’s supporters on the political right:
1. Danielle Smith
The pull-out quote in yesterday’s front-page Globe and Mail story (repeated in today’s editorial) was: “They didn’t say the words that I think industry wanted to hear: ‘We were wrong, and we’re sorry’.” - Wildrose Leader Danielle Smith
Similarly, The National Post’s Kevin Libin noted, “Mr. Stelmach avoided offering the unreserved apology many Calgary executives had wanted.” (Incidentally, Smith and Libin have been the Alberta panellists on The Michael Coren Show the couple of times that I have appeared.)
So, in addition to giving away Alberta’s resources more cheaply, the government is supposed to apologize to the companies? If the apology is really more important than the money, maybe Premier Stelmach should have just said he was sorry and left royalty rates where they are.
2. Andrew Coyne
On Thursday, Coyne seemed to be filling in for Kevin O’Leary on CBC’s Lang & O’Leary Exchange. He made two arguments against higher royalties: they are offset by lower auction revenue and Alberta does not need the revenue anyway.
The first point is actually a much improved version of one that he has made before. His final National Post column presented auctioning access to oil and gas reserves as a brilliant new idea that had not been previously considered. In fact, the western provinces have always collected both royalty and auction revenue. Read more »
Employment Picture Improves
Posted by Erin Weir under Alberta, Statscan, labour market, unemployment.
March 12th, 2010
Comments: 3
Today’s Labour Force Survey paints an appreciably improved picture of Canada’s job market. In February, full-time employment rose by 60,000 and part-time employment fell by 39,000. Employers are not only hiring more workers, but also upgrading part-time positions to full-time positions. Almost all of the part-time jobs created in January became full-time jobs in February.
Importantly, this employment gain reflected additional paid positions as opposed to more self-reported self-employment. In fact, self-employment decreased by 17,000 as the number of employees increased by 38,000.
Despite impressive employment numbers, unemployment remains high. While total employment rose by 21,000, unemployment fell by only half as much (12,000) as the labour force expanded. In total, more than 1.5 million Canadians remain officially unemployed.
Sectoral Breakdown
The public sector drove all of February’s job creation, more than offsetting a small decline in private-sector jobs. However, within the private sector, employment rose in manufacturing and resource extraction. The overall loss of private-sector employment was led by construction and service industries, especially trade, finance and real estate.
Increased employment in government, manufacturing and resources is consistent with the latest Gross Domestic Product figures, which reflected economic growth driven by government stimulus and the beginnings of an industrial recovery.
Fewer jobs in construction and real estate may suggest a slowdown of the recent housing boom. However, one month does not make a trend.
Alberta Bucks National Improvement
Partially offsetting gains in other provinces, Alberta lost 15,000 jobs in February. Alberta’s unemployment rate jumped 0.3% (from 6.6% to 6.9%). By contrast, the unemployment rate declined by 0.4% in both neighbouring provinces: BC and Saskatchewan.
UPDATE (March 13): Quoted by Canadian Press, CBC, The Toronto Star and The Hamilton Spectator
National Post Exposes Media Bias
Posted by Erin Weir under media.
March 11th, 2010
Comments: 9
Yesterday, The Winnipeg Free Press ran a column that quoted some material from this blog and some other progressives. The National Post’s blog features the following retort:
In her reaction to Budget 2010, the Winnipeg Free Press’s Frances Russell quotes the following: Larry Brown, national secretary treasurer of the National Union of Public and General Employees; Erin Weir, an economist with United Steelworkers; Armine Yalnizyan, an economist with the Canadian Centre for Policy Alternatives; Brian Topp, executive director of ACTRA; that is all. We won’t bother summarizing Russell’s conclusions - we’re sure you’ve already worked them out from that not-very-diverse cast of characters.
Basically, I think that any day the Post feels compelled to respond to left-wing economists is a fairly good day. However, this response is pretty feeble.
Russell’s column obviously puts forward a certain point of view. It was an opinion piece, after all. Does each column printed in the Post (or other newspapers) typically encompass a diverse range of views?
News articles, by contrast, are supposed to be balanced. But they often quote a bunch of bank economists, maybe with someone from the C. D. Howe or Fraser Institute thrown in for spice.
Here’s what Tom Flanagan wrote a week ago about the Canadian media:
Our situation in Canada is very different from the USA, where the national media are definitely liberal (except for Fox News). In Canada both the Sun chain and the CanWest papers tend to be sympathetic or at least open-minded toward the Conservatives. The Globe and Mail sometimes indulges in quixotic crusades against the government (e.g., prorogation) but is pretty fair overall. The Toronto Star is relentlessly hostile, but nobody ever said you could make friends with everyone. I would say that, compared to most countries with which I have any familiarity, the Conservatives in Canada actually have friendly media to work with.
PEF at the CEA meetings 2010
Posted by Marc Lee under PEF.
March 10th, 2010
Comments: none
Please join us in Quebec City this May 28-30 for another round of PEF sessions at the Canadian Economics Association meetings. Here is the tentative PEF line-up for the meetings.
Friday, 09:00 - 10:30
PEF I: Was Financialization Rational for Capital?
Organizer: Robert Chernomas (U. of Manitoba)
-Fletcher Baragar, “Why Financialization, Why Now?”
-Robert Chernomas, “From Growth Stagnation to Financial Crisis: A
Missing Link in Mainstream Theory”
-Mara Fridell & Mark Hudson, “Financialization, Enabling Policy, and
Elite Policy Networks in the USA”
-John Loxley, “The Financialization Crisis and Sovereign Debt”
Friday, 11:00 - 12:30
PEF II: Canada’s Economic Security and the Great Recession: What Have
We Learned?
Organizer: Andrew Jackson (CLC)
-Andrew Jackson, “Employment Insurance ”
-Armine Yalnizyan, “Rethinking Economic Security”
-John Stapleton, “Social Assistance”
-Nick Falvo, “The Great Recession’s Impact on Homelessness”
Friday, 14:30 – 16:00
PEF III: Panel - Is There a Market Fundamentalist Message in the
Introductory Textbooks?
Organizers: Rod Hill (UNB) and Tony Myatt (UNB)
-Rod Hill (UNB) and Tony Myatt (UNB), “To Be Determined”
-Avi Cohen (York), “To Be Determined”
-Mel Cross (Dalhousie) and Brian MacLean (Laurentian), “To Be
Determined”
-Marc Lavoie (U. Ottawa) and Mario Seccareccia (U. Ottawa),
“Perspective on the Hill-Myatt Book from our Experience with the
Baumol/Blinder Project”
-Chris Ragan (McGill), “To Be Determined”
Friday, 16:30 – 18:00
PEF/URPE IV: Labour in a time of crisis, comparing experiences and
prospects in Canada and the US.
Organizer: Mathieu Dufour
-Michael Lynk (Faculty of Law, University of Western Ontario),
“Hydraulic Relationships: Labour Law and Economic Inequality”
-Armine Yalnyzian (CCPA), “Transformers: Recession’s Impacts on
Canada’s Labour Market”
-Mike Hillard (University of Maine), “Class Politics and American
Employer Exceptionalism: Why is the U.S. So Conservative?”
-Jeannette Wicks-Lim (Political Economy Research Institute), “U.S.
Policy Considerations to Guarantee Workers a Decent Standard of Living”
Friday, 18:30-20:30, PEF Social
Location TBD
Saturday, 0900-10:30
PEF/CSLS V: Perspectives on Happiness in Canada and the United States
Organizers: Andrew Sharpe (CSLS) and Chris Barrington-Leigh (UBC)
Chair: Ian Stewart (CSLS)
-Andrew Sharpe (CSLS), Ali Akbar Ghanghro (CSLS) and Anam Kidwai
(Institute for Competitiveness and Prosperity) “Explaining in Happiness
in Canada: New Results from the 2007-2008 Canadian Community Health
Survey”
-Chris Barrington-Leigh (University of British Columbia) “Canadian Life
Satisfaction Over Time”
-Richard Florida (University of Toronto), Charlotta Mellander
(University of Toronto) and Kevin Stolarick (University of Toronto)
“Should I Stay or Should I Go Now: The Effects of Community
Satisfaction on the Decision to Stay or Move”
Discussant: John Helliwell (University of British Columbia)
Saturday, 11:00 - 12:30
PEF VI: Integrating Climate and Industrial Policies
Organizer: Marc Lee, CCPA
Chair: Marc Lee, CCPA
-Marc Lee, CCPA, “So What is a Green Job Anyway?”
-Ken Carlaw, UBC-Okanagan, “Industrial Policy Lessons for Climate
Mitigation Strategies”
-Erin Weir, Steelworkers, “The Case for Carbon Tariffs”
-Brendan Haley, “From Staples Trap to Carbon Trap”
Saturday, 12:30 – 14:30
PEF AGM (lunch provided)
Saturday, 14:30 – 16:00
PEF VII: TITLE: “Canadian Public Finances and Monetary Policy: Sound
Finance or Functional Finance”
Organizer: Mario Seccareccia (University of Ottawa)
Chair: Marc Lavoie (University of Ottawa)
-Andrew Jackson (Canadian Labour Congress, Ottawa), “Reflections on
Canadian Fiscal and Monetary Policy during the Great Recession”
-Keith Newman (Communications, Energy and Paperworkers Union of Canada,
CEP, Ottawa) “Do Taxes and Bonds Pay for Government Expenditures?”
-Mario Seccareccia (University of Ottawa) “Is Functional Finance
‘Sound’ Long-Term Policy or Is There a Need for an ‘Exit Strategy’ to
Ensure Balanced Budgets?”
Saturday, 16:30 – 18:00
J.K. Galbraith Lecture, John Loxley
Different perspectives on GHG emissions
Posted by Marc Lee under China, US, carbon pricing, climate change, globalization.
March 10th, 2010
Comments: 6
When emissions are reported for the US or Canada, there is an accounting convention that restricts the total to emissions released within the borders of that jurisdiction. This means that Canada’s exports of tar sands oil are counted only to the extent that fossil fuels are used in the extraction and processing, not the combustion of the final product in the US.
In BC, this came up in a recent approval of a new natural gas processing facility in the northeast, which will add more than 2 megatonnes per year to BC’s GHG inventory, but another 16 Mt per year downstream when it is eventually combusted (see this post). If we counted those emissions (and other emissions associated with the extraction phase) it would make BC’s total emissions inventory about one-third higher. To put that in perspective, BC’s much-lauded carbon tax is only estimated to reduce emissions by 3 Mt per year after 2020 relative to business-as-usual growth.
A new study by Davis and Caldeira takes a consumption or lifecycle approach to emissions to see how much has been “outsourced” to countries like China who make the stuff we consume:
Over a third of the carbon dioxide emissions linked to good and services consumed in many European countries actually occurred elsewhere, the researchers found. In Switzerland and several other small countries, outsourced emissions exceeded the amount of carbon dioxide emitted within national borders.
The United States is both a major importer and a major exporter of emissions embodied in trade. The net result is that the U.S. outsources about 11% of total consumption-based emissions, primarily to the developing world.
The full study has to be purchased through the publisher (here), but a good (free) summary of the main findings is here.
Canada, according to the study, is a small net exporter of GHG emissions. No data for Canada are presented, unfortunately, as Canada does not crack the top 10 net exporters list. But there is some work from Statistics Canada from a few years ago that sheds some light on this. A study by Joe St. Lawrence found that in 2002 Canada exported 264 Mt of Co2 equivalent emissions, an amount that is about half of total GHGs produced domestically. In the same year, about 105 Mt of GHGs were attributable to Canadian consumption as embodied in imported goods. This means net GHG exports were 151 Mt, a figure that is hardly “small” – enough to be number five on the Davis and Caldeira list (differing methodologies make these incomparable).
These studies are useful in highlighting the challenges of developing a new framework for GHG mitigation on the world stage. Exemplary countries that appear to be making progress on the emissions front, like many in Europe, may in fact be better at outsourcing the emissions associated with their consumption. That said, Canada still ranks number five in consumption-related emissions, at 16.6 tonnes per person in 2004. Australia is slightly ahead (16.7) followed by Singapore (20.2), the US (22.0) and Luxembourg (34.7).
Another complexity is to look beyond just annual emissions. A deal-breaker issue in Copenhagen was the historical responsibility for GHG emissions, the fact that the advanced countries have been using the global commons “sink” to spur their economic growth for much longer than developing countries, who are now being asked to make similar reductions. I recommend a lecture Naomi Klein gave recently to a CCPA gala on the topic of climate debt, where she argues that emission reductions in rich countries are fundamentally a matter of justice from the perspective of poorer countries.
To give a sense of the magnitudes of historical emissions, the World Resources Institute has data on historical emissions (in this case, via the Guardian’s awesome data blog). The number one historical emitter, by far, is the US, with almost 30% of total emissions going back to 1900. Russia and China are next, each with just over 8% of the historical total. Canada ranks ninth, with responsibility for just over 2% of the total (a number consistent with is annual contribution).
If we were take the top 15 historical emitters (in descending order: US, Russia, China, Germany, UK, Japan, France, India, Canada, Ukraine, Poland, Italy, South Africa, Australia and Mexico), these countries account for 80% of total historical emissions. It makes for an interesting list because it is not exclusively rich countries. Part of this is due to population size: if we group the Western European countries together, they total more than 11% of the total.
It would be interesting to lump these two broad issues together: historical consumption-related emissions. For example, historical emissions show that China’s claim to be just another developing country that needs leeway to grow its emissions is a sham, but on the other hand the Davis and Caldeira study finds that China is also the number one net exporter of emissions by a large margin, with 22.5% of its annual emissions dedicated to exports (this number may be even higher now, as the study data is for 2004).
Finally, this all highlights the need to account for trade flows in accounting and in policy responses. Domestic policies to reduce emissions may be ostensibly successful, but may only encourage the outsourcing of emissions, with little change from a consumption perspective (or worse, larger emissions if Chinese power is from coal and production practices are more inefficient). Carbon tariffs, for example, would have to be considered alongside any carbon tax to level the playing field.
Efficiency vs Resilience
Posted by Marc Lee under climate change.
March 10th, 2010
Comments: none
Like most economists, I’m big on efficiency. Even in my personal life I tend to group tasks together so that I save time, and I always feel a bit guilty if I retroactively realize I somehow failed to optimize my behaviour.
In my recent work on climate change, efficiency comes up in the context of GHG mitigation; for example, a carbon tax comes up tops on the policy list for achieving emission reductions in the least costly manner possible. But with our governments doing a whole lot of nothing to reduce emissions, policy is going to be increasingly about adaptation, or how we respond to the physical impacts of locked-in warming. In this arena, the dominant concept (or perhaps, buzzword) is not efficiency but resilience, which generally means being robust to shocks and ensuring redundancies, which may actually be the opposite of efficiency.
BC needs to think about this a lot. A province where big weather systems move in from the Pacific to smash up against warm land and tall mountains is bound to have its share of calamity. Most of the settlements in the province are in river valleys or on the coast, making them susceptible to climate-change-related phenomena, from rapid onset events like landslides or windstorms to longer term changes like sea level rise. Indirect impacts also include the decimation of forest land by the mountain pine beetle, itself a consequence of climate change, and one that has upped the ante for massive fires. Every BC community will have a different set of risk factors but they share in common the potential of treacherous conditions that lead to flooding or hail storms, or that cut off electricity or transportation links.
So, how to plan for such potential outcomes? A lot of thinking has gone on about what sustainability means, however, and I generally take an ecological economics interpretation that sustainability is when inputs into production are harvested in a way that does not deprive future generations, and when wastes from production are within the sink functions of the planet. Resilience is harder to pin down.
Resilience is like “competitiveness” in economic policy discussions, a value or desirable attribute that is typically not anchored in anything measurable. The Climate Justice Project has been developing a framework for understanding community resilience, trying to find the right intersection between the top-down principles and components as understood in the academic literature, and the bottom-up efforts made by communities themselves, usually in the aftermath of a major shock.
First of all, resilience of what? By community are we talking about a municipality, or the broader region, which may include native reservations, the resource base and farms, and neighbouring towns to which people frequent for work, public services or family visits? Within municipalities, are we considering the various sub-populations that live there? Are we just talking about resilience for humans or also other creatures or biodiversity in general? Do we mean resilience of status quo structures and consumptions patterns? How do adaptation policies interact with mitigation policies? And so on.
I’m also particularly interested in the justice considerations of a resilience framework. It is reasonable to think that high income people will generally have greater capacity to weather storms than lower-income people, although the latter are also more accustomed to hardship, which may in fact increase their resilience. In New Orleans, many poor people lived in areas vulnerable to a dyke breech, whereas in BC it may be wealthier people with waterfront homes that are more at risk. Age is also a risk factor, with seniors more vulnerable to climate events like heat waves and less mobile should there be a need to evacuate.
Anyway, income or age per se may matter less than social networks, or how connected people are to others who can help in times of need. Which is a social form of redundancy. But even more mundane forms, resiliency demands redundant systems or networks: back-up power systems should the hydro lines go down; food supplies in emergencies but also greater self-reliance should supply chains fail; alternative sources of potable water. All of which requires planning, and public engagement processes to better understand different perspectives and how networks can be cultivated to better ensure reslience. So resilience policy is in many ways contrary the individualistic, hyper-efficient, just-in-time economic system we have developed.
[Thanks to a number of students and faculty at UBC who engaged these questions and issues in work for the Climate Justice Project and a recent student-led conference at UBC. This post is channeling many threads from that work.]
A Reverse Mortgage on Ontario’s Crown Jewels
Posted by Erin Weir under Ontario, liberals, media, privatization.
March 10th, 2010
Comments: 1
I have the following op-ed on page A19 of today’s Toronto Star. It reiterates points made before on this blog.
The only substantive difference is that I had previously low-balled the annual profits of Ontario’s Crown corporations at $4 billion. Today’s op-ed assumes $4.3 billion, the amount anticipated for the current fiscal year.
That assumption probably still understates the value of Crown corporations, which are projected to generate $4.8 billion by 2011-12. Even ignoring likely future profit growth, the proposal to privatize a minority stake in provincial-government enterprises looks like a ripoff for the people of Ontario.
Privatization a bad deal for Ontarians
March 10, 2010
Erin Weir
PATRICK CORRIGAN/TORONTO STAR
This week’s provincial throne speech indicated that Queen’s Park has “initiated a review of its business enterprises.”
The Ontario government is reportedly considering combining these enterprises into a “super corporation” and selling a minority stake to private investors. This proposal is politically clever, but would be a financial blunder for the province.
Open Ontario: Kinsella vs. Hudak
Posted by Erin Weir under Blogroll, HST, Ontario, corporate income tax, media.
March 9th, 2010
Comments: 1
Yesterday afternoon, I caught the subway down to Queen’s Park to find out whether the throne speech would shed any light on the provincial government’s privatization plans. As it turned out, the speech included only a couple of lines on Crown corporations.
But I ran into blogger extraordinaire Warren Kinsella at the legislature and note that he has reprimanded Tim Hudak for heckling the Lieutenant Governor. I did not have a good view of Hudak, but did hear some noise from Conservative benches. The most audible chuckles were in response to the following bit:
Your government is also cutting corporate income taxes and eliminating the capital tax this year.
And in lockstep with the federal government, Ontario is introducing a harmonized sales tax.
Independent economists say these changes will create nearly 600,000 more Ontario jobs . . .
As I pointed out exactly a month ago in The Toronto Star, this claim is indeed laughable (see below). Of course, Kinsella is right that it is inappropriate to make noise while the Lieutenant Governor reads the throne speech. However, I suggest that it is also inappropriate to stick a Liberal talking point in the throne speech for the Lieutenant Governor to read.
At least HST has created one job (Feb. 9, 2010, page A18)
Premier Dalton McGuinty says, “Economists have told us that our package of tax reforms will lead to 600,000 more jobs.” He appears to be using a projection from the University of Calgary’s Jack Mintz. But is this projection reasonable?
CUPE federal budget analysis — and video!
Posted by Toby Sanger under budgets, federal budget.
March 9th, 2010
Comments: none
I’ve been remiss in not posting information about and links to the federal budget analysis that we did at CUPE, as Paul Tulloch had urged on this blog.
In addition to the press release we issued, there’s an overview and summary that I prepared on budget day, and a dozen really good detailed issue sheets that different CUPE researchers prepared about the budget and what it does –and doesn’t–do for aboriginal peoples, climate change, early learning and child care, employment insurance, health care, municipal infrastructure, non-profit community and social services, pensions, post-secondary education, privatization, water and women.
Later on, I’d like to comment on the measures in the federal budget taken to tighten up on the stock option tax deduction that I had written about the day before the budget. I believe their claims of tax savings from this measure are far too high and will come out on the corporate tax side, rather than the PIT side in any case.
And for some entertainment, here is the link to a video, also critically acclaimed on YouTube “The scourge of fair taxes”, that CUPE had done after the 2008 Budget. Still very relevant and funny after all these years.
TD Bank on Changing Cdn Workplace
Posted by Toby Sanger under labour market, women.
March 9th, 2010
Comments: 1
I was pleasantly surprised to see a report published yesterday by Don Drummond and Francis Fong at the TD Bank on the Changing Canadian Workplace.
It provides a short but decent summary of some different issues affecting labour: macro trends, educational requirements, changing composition, women, immigrants, aboriginal Canadians, older workers, widening income gaps, income security, etc.
These are a lot of the issues we are familiar with. I’ve only given it a quick skim, but it is refreshing to see someone else deal with these issues in what initially appears to be a candid way.
Don Drummond will be giving the Sefton memorial lecture on labour issues later this month. It appears that, as well as International Women’s Day, was the impetus for this report.
From a Woman’s Perspective: Canada’s Place in the World
Posted by Armine Yalnizyan under inequality, rankings, women.
March 9th, 2010
Comments: 1
Today’s day-after-International-Women’s-Day story in the New York Times by Nancy Folbre links to four indices of gender equity.
http://economix.blogs.nytimes.com/2010/03/08/the-worlds-best-countries-for-women/
How is Canada doing?
Canada ranks 4th in the Human Development Index (we were number one for eight years) as well as the UNDP Gender Development Index, behind Norway, Australia and Iceland. Norway has been ranked the best country for human development and gender equality for seven years now.
The UNDP’s Gender Empowerment Index puts us at 10th place (behind Norway, Sweden, Finland, Denmark, Iceland, the Netherlands, Belgium, Australia and Germany)
The World Economic Forum Gender Gap Index places us in 18th place, where we’ve been since 2007.
Social Watch’s Gender Equity Index uses a different system, to measure out of 100. Canada is 75% this year, where this measure has been since they started 2007, compared to a global average of 34.5%. They don’t do rankings. Globally, the average value dropped between 2008 and 2009, pointing to the impact of the crisis on women’s prospects, particularly in the world’s poorest countries.
Both the World Economic Forum and Social Watch are more focused on what is happening in the global south.
While this ranking shows stasis for Canada in the past few years, any improvements women have seen in the past decade are based on their own steam – getting more post-secondary education, working more, buying more homes, getting deeper into personal debt. For years federal budgets have focused on tax cuts and, more recently, stimulus that primarily benefits markets and men. Women, on the other hand, are the primary beneficiaries of improved access to public transit, child care, health care, affordable housing, affordable education, etc. etc. all supports that require more, not less, public sector involvement.
At roughly 13% of GDP, the federal share of the economy today stands at levels of the late 1950s, before we had Medicare, unemployment insurance, seniors’ income supports and a vast network of universities and colleges, and roughly 2 percentage points lower than the post-war average. The government plan is to pull the size of government further back.
At the same time it’s also focused on a crime-and-punishment agenda and a Defence plan that commits the public purse to spending billions more for policing and emprisoning people at home and fighting wars instead of helping develop nations abroad.
You can only make an economically strong country a great country for people to live in with a public sector engaged in supporting the public. A big public sector doesn’t necessary mean we’ll get the supports people need to reduce violence and have opportunities to learn, grow and participate.
Make a country a safe place for women to live and develop their potential, and it’s great for everyone. That’s of course why we went to Afghanistan…right? We should be aiming to make Canada the best country in the world for women (and their loved ones) to live.
Women in the Canadian Economy: What’s Standing in the Way of Equality?
Posted by Iglika Ivanova under women.
March 8th, 2010
Comments: 9
Last weekend, I spoke at a community event celebrating International Women’s Day in Vancouver. It got me thinking about the status of women in the Canadian economy, reflecting both on the successes over the last half century and on the areas where work is still needed to achieve gender equality.
As a young woman in Canada, I have not felt discriminated against. Throughout my university career, my gender didn’t seem to matter and professors encouraged me to pursue a PhD and the life of an academic as much as any of my male fellow students. Growing up in Bulgaria was a different story - my own mother stopped me from going to a physics-based high school program at home because she felt that physics in not for women (those were her words). As an electrical engineer herself, she obviously had experienced discrimination and wanted to prevent me from going down that same road.
In Canada, however, I didn’t get any of that. Maybe it’s because I live in Vancouver, but what I hear Canadians tell their girls is that they can grow up to become anything they aspire to — rocket scientists, surgeons or presidents. Many of the young women I meet feel similarly - they feel that they are free to make choices and say they are as much in control of their career paths as their male friends.
Yet, when we look at the numbers, women are not growing up to be rocket scientists, surgeons or presidents. Nurses, teachers and social workers is more like it. Women are woefully underrepresented in “non-traditional” occupations such as high-level management and natural sciences. Even in the public sector, where women make up the majority of the workforce, they’re less likely to hold senior management jobs than men.
Yes, there are some women in leadership positions in areas that were previously closed to our gender in politics, business and academia. But they are few and far between.
So, if young women feel that gender is irrelevant for economic success, then why are women’s average annual earnings for full-time, full-year work in 2007 only 71 .4% of men’s? Why are average hourly wages so different: in January 2010, women got paid on average $20.59 per hour, compared to men’s $24.49? Why do women continue to be overrepresented in low-wage jobs? Over 60% of minimum wage workers are women and the proportion of workers earning under $10 per hour is similar.
It would seem that something happens somewhere along the line between school, when the sky’s the limit, and the demands of real life which pushes women into traditional sectors. The older I get, the more convinced I become that this something is children. Or rather, that it’s the outdated family policy that we have in Canada (and the US) that forces women to choose between motherhood and career or economic success.
Recent studies from the US show that in corporate America, childless women’s earnings are on par with men’s, and the earning discrepancies appear when women start having children. Research by Statistics Canada shows that having children is associated with an earnings loss that persists throughout a woman’s working career. At any given age, women with one child earned about 9% on average than childless women, while those with two children earner 12% less, and those with three or more children earned 20% less. The earning gap was larger for women with higher education than for those who only had high school diplomas. Curiously, this parental penalty does not seem to apply to men - men with children earn more on average than childless men.
The more I dig into the research, the more it seems that women with children earn less because they end up taking years away from work. And the reason that they are often forced to do so is that women remain the primary caregivers for children and we lack the social supports to allow women to work and care at the same time. Changing this would require a concerted effort by governments and the private sector.
What governments have control over is Canada’s family policy, and it is sorely in need of change to catch up to social realities of the 21st century - many women with children work, whether by choice or by necessity, and we need to put in place adequate programs to support these women and their families.
Providing accessible childcare that families can afford is an obvious one. Improving parental leave provisions is another way to improve many women’s lives. Statistics Canada quotes a recent survey showing that 40% of new parents could not take the entire parental leave because their family’s financial situation required them to go back to work. Increasing benefit amounts to reflect costs of living would be a great start.
Employers will also have to adapt, and we’ve already started to see some of that. More and more employers allow flexible working hours, opportunities to work from home and an increased availability of part time work. These are all changes that make it possible for women to care for children without having to completely withdraw from the workforce for years at a time.
Some companies are even in the business of raising awareness that women have not achieved nearly equal representation on the top of organizations both in the private sector and in government. McKinsey & Company is probably the largest and best-known professional services firm that is calling attention to the shortage of women in leadership positions in America’s businesses. Their reports, Women Matter and Women Matter 2, demonstrate some important relationships between the presence of women in corporate leadership roles and the financial performance of organizations and explore why that may be the case. This is a good start, but more work needs to be done.
The need to support women to work and to care would only become more pressing as the population ages and we start to experience labour force shortages. We need the women to fully participate in the labour market, as workers and as decision-makers. Changing family policy and making workplaces more flexible is the way to do it.
So go ahead and continue telling the girls that the sky’s the limit, but let’s also make sure that it’s really true.
Happy international women’s day to all.
Foreign Control of Canadian Mining
Posted by Erin Weir under Statscan, foreign investment/ownership.
March 8th, 2010
Comments: 2
This morning, Statistics Canada released Corporations Returns Act data for 2007:
Foreign acquisitions of Canadian-controlled firms, particularly in manufacturing and oil and gas, drove a 10.6% increase in Canadian assets under foreign control in 2007. Canadian assets under Canadian control rose 9.9%, led by the depository credit intermediation industry.
As a result of these movements, foreign-controlled firms accounted for 21.3% of corporate assets in 2007, up slightly from 21.1% the year before.
Foreign investors took over substantial chunks of manufacturing and the oil patch. On the other hand, the banks (which are Canadian-controlled) greatly increased their assets prior to the financial crisis. Therefore, the overall proportion of corporate assets under foreign control did not change much.
Given the controversy around certain foreign-controlled mining companies, I was interested in the data on that industry. Unfortunately, Statistics Canada deems the mining data for 2007 “too unreliable to be published.”
However, the major foreign takeovers in mining occurred during 2006. The Corporations Returns Act publication for 2006 had indicated that foreign-controlled mining assets jumped from $10 billion in 2005 to $39 billion in 2006. In other words, foreign control of Canadian mining rose from 12% to 40%.
Today’s publication for 2007 does include revised figures for 2006, which reveal an even more dramatic story. In fact, foreign-controlled mining assets jumped from $10 billion in 2005 to $54 billion in 2006. So, foreign control of Canadian mining actually rose from 12% to 48%.
This is Your Economy on Stimulus
Posted by Erin Weir under GDP, Statscan, federal budget, fiscal policy, monetary policy, stimulus.
March 7th, 2010
Comments: 2
My post on this past Monday’s Gross Domestic Product (GDP) release emphasized the disconnect between profits and investment in the corporate sector. As Andrew commented on that post, the public sector’s contribution to the recovery is also noteworthy.
That point seems especially relevant in the wake of a federal budget devoted to continuing previously announced stimulus. The right-wing critique from outside the Conservative Party seemed to be that the budget should have stopped or reduced announced fiscal stimulus because Canada’s economy is already recovering thanks to the magic of the market and/or monetary policy.
Output has indeed recovered somewhat since bottoming out in the second quarter of 2009. How much of that recovery was driven by fiscal stimulus? There are a couple of methodological challenges in breaking down GDP to address this question.
First, nationwide output is obviously difficult to count. Even in the unadjusted, current-dollar figures, Statistics Canada acknowledges a “statistical discrepancy” between total GDP and the sum of its components.
Second, the official figures are seasonally-adjusted at annual rates in chained 2002 dollars. The separate seasonal adjustment of total GDP and of each GDP component creates a further difference (in any given quarter) between the total and the sum of components.
Such discrepancies of a few billion dollars are tiny in the context of a $1.3-trillion economy. However, they loom larger when comparing particular quarters. Total GDP grew by $18.8 billion between the second and fourth quarters, but adding up the components suggests growth of only $13.4 billion (unless my arithmetic is wrong.)
Canada’s GDP (seasonally-adjusted in billions of 2002 dollars)
|
Q2 |
Q4 |
Increase |
|
|
Total GDP |
1,278.2 |
1,297.0 |
18.8 |
|
Consumer Spending |
807.6 |
822.0 |
14.4 |
|
Gov. Purchases |
269.7 |
277.7 |
8.0 |
|
Gov. Investment |
49.1 |
53.9 |
4.8 |
|
Housing Construction |
70.8 |
77.3 |
6.5 |
|
Other Biz. Investment |
150.9 |
153.1 |
2.2 |
|
Exports |
403.2 |
429.9 |
26.7 |
|
Minus Imports |
(476.2) |
(525.4) |
(49.2) |
|
Sum of Components |
1,275.1 |
1,288.5 |
13.4 |
Economic growth has been net of a substantial deterioration in Canada’s trade balance. As components of real GDP, imports have recovered much faster than exports. Read more »
McGuinty’s Super Privatization
Posted by Erin Weir under Ontario, budgets, media, privatization.
March 6th, 2010
Comments: 1
The front page of today’s Toronto Star reports, “The Ontario government is looking at creating a publicly held $60 billion ‘super corporation’ of assets such as the Liquor Control Board of Ontario and Hydro One and then selling a minority share to private investors.” It would also include the province’s other major Crown corporations: Ontario Power Generation and Ontario Lottery and Gaming.
More than a month ago, my pre-budget testimony at Queen’s Park noted, “Another proposal has been to raise money by selling provincial assets. . . . just to break even on privatizing Crown corporations, the Government of Ontario would need to sell them for $72 billion.”
Apparently, I was correct to suggest that the McGuinty government was contemplating selling all of Ontario’s major public enterprises as a package. And my estimate of what that package might be worth was in the right ballpark.
However, the government is proposing to sell only a minority stake, while retaining control of the assets and most of the profits. Although it is obviously trying to avoid the usual objections to privatization, many people will legitimately worry that this scheme is a slippery slope toward a more complete sell-off. Even if one believes that Liberals would never sell more than half of the “super corporation” shares, setting up the entity and issuing shares would make it easy for a potential future Conservative government to finish the job.
In (temporarily) avoiding the worst pitfalls of privatization, the government’s proposal also misses the supposed benefit of privatization: replacing public-sector management with allegedly superior private-sector management free from political influence. Rather than changing how Crown enterprises are managed, the “super corporation” would mostly be a way to convert a portion of future revenues from Crown enterprises into up-front cash.
Essentially, the Ontario government is considering a reverse mortgage from Bay Street: the government gets cash today and retains control of its house, but loses some of the ownership. Would that be a good financial deal for the provincial treasury?
As I noted in my pre-budget testimony, if the Ontario government writes long-term bonds at 5% interest and levies a 10% corporate tax on privatized profits, the $4 billion of annual Crown-corporation profits are worth $72 billion of up-front cash. However, The Star reports that the super corporation “could be worth between $50 billion and $60 billion.”
If the government sold one-third of the shares based on a $50-billion valuation, it would shrink the current year’s deficit by $16.7 billion. That would reduce future debt-servicing costs by $0.8 billion per year. But giving up one-third of Crown corporation profits would reduce provincial revenues by $1.2 billion per year. On balance, Ontario taxpayers would come out nearly half a billion dollars poorer. Read more »
The Xerox Budget
Posted by Toby Sanger under budgets, federal budget.
March 5th, 2010
Comments: 1
Analysis of the 2010 Federal Budget by David MacDonald, coordinator of the CCPA’s Alternative Federal Budget:
If there was any policy recalibration due to prorogation, it was on their photocopier as 94% of this budget’s spending has already been announced. The problem when you photocopy your work is that you don’t learn anything from the process. That is certainly true of the Harper government. The Conservative reforms to EI were meant to help more of the jobless, yet half of all unemployed Canadians still can’t access EI. The concern last year was that EI recipients would exhaust their benefits before they got another job and that is exactly what is happening. Last year’s plan isn’t working to address this year’s challenges.
It also appears that the Harper government isn’t seeing what most Canadians are seeing which is plenty of advertising and little actual building of infrastructure. Instead of cutting red tape to get infrastructure programs moving, the government is cutting regulations on uranium mines.
Government spending is capped more generally with strategic reviews forcing departments to cut 5% of their programs when the review gets to them. The glaring omission to these caps is the defense department that continues to grow at its pre-established rate until 2012 when the growth rate slows slightly. Although there is plenty of talk about Canada’s positive role in Haiti and Afghanistan, international development spending that makes that possible has been capped making these types of interventions much harder in the future.
What is little advertised in this budget is that much of the deficits going forward are being caused by the continuing corporate tax cuts worth on average $4 billion a year over the next 3 years. It is also worthwhile noting that while building stimulus infrastructure ends next year, the tax cut measures introduced as stimulus will continue to erode revenues indefinitely.
The 6% of newly announced programs are more weighted with fluff than actual new spending. Similar to last year’s stimulus budget, there is no coherent vision for the future. There is a smattering of small new spending efforts with a lot of padding for government programs that are paid for out of existing funds. Seniors are given their own holiday, but no action on pensions is taken. Some small new amounts are spent on university research, but nothing is done to address crippling student debt.
Despite its title, this isn’t a leadership budget, it is an acceleration of Harper’s Americanization of Canada with “race to bottom” corporate tax rates, and an ever expanding military. The jobless are left to fend for themselves and national planning for the future beyond balanced books is completely off the table. While the military is exempt from spending caps, addressing foreign policy goals like rebuilding Haiti after the earthquake are a secondary priority as international development funding also gets capped. All in all, this is much more representative of the Conservatives vision of Canada, unfortunately it has nothing to do with a proactive vision for the future.
The 2010 Federal Budget Delivers Cuts Not Jobs
Posted by Andrew Jackson under federal budget, fiscal policy.
March 5th, 2010
Comments: none
The Budget contains no big surprises but is still a big disappointment. Despite the fact that unemployment is and will remain very high, economic stimulus measures effectively end after this year. A few very small new investments in jobs and skills will be made, but they do not amount to even the beginnings of a strategy to build a new economy. There will be a temporary extension of EI work-sharing, but about 500,000 unemployment claims filed during the Great Recession will still be exhausted. Corporate tax cuts continue, and are even modestly increased in this Budget, so the burden of deficit reduction will fall on government programs. Despite very low interest rates and one of the lowest debt levels in the advanced industrial countries, federal program spending will be slashed. Spending on international assistance is to be frozen.
While the world’s and Canada’s economic recovery is still very fragile, the Harper government has decided to focus on eliminating the deficit. Creating jobs would help balance the books at far lower cost.
The full CLC Budget Analysis can be found at:
And a more condensed version is on rabble at
http://www.rabble.ca/news/2010/03/budget-delivers-cuts-not-jobs
A whimper of a federal budget
Posted by Marc Lee under budgets, economic crisis, federal budget.
March 4th, 2010
Comments: 2
I did not make it to the federal budget lock-up, and having pored over the document I am pleased to say I missed it. There is very little in this budget that one would expect of a budget in the midst of a recession (the GDP numbers have turned up, I know, but unemployment is still high and could continue to rise for a while if past recessions are any indication). OK, I have not looked into every nook and cranny, and did not have Finance officials around this time to decipher pieces of the budget – the feds love long budgets that give precious little detail, especially if something is new money or spent over many years – so there might be some additional stimulus action hidden in there. But it seems to me that most of the content is recycled from last year’s budget, a reannouncement of what the government is already doing (”Great job, Harpie!”).
For example, look at Table 4.2.2 on page 173, which tells us the fiscal magnitude of actions taken in this year’s budget. It shows 2010/11 with a status quo deficit of $48.9 billion. New measures proposed in the budget total $1.1 billion, offset by $800 million in cuts elsewhere, for a net increase in the deficit of $300 million. Underwhelming, to say the least.
Which makes it somewhat better (but not much) than the TV commercials about Canada’s Economic Action Plan, which seem to be more about reinforcing the Conservative pre-election talking points about how strong they are on the economy than telling people information they need to know (and extremely deceptive at that, with many of the recent batch of commercicals on Employment Insurance, an area where the Conservatives have done next to nothing).
Like the commercials, the budget is used as a policy platform for the next election (this itself a recycling of the 2006 Advantage Canada document that also came out at budget time). Rather than actual budget actions, the “budget” goes on and on about plans to boost Canada’s “competitiveness” (would someone in Ottawa please define that term and tell me how it should be measured?). In doing so, they pull out all of the chesnuts of neoliberal policies past. Canada will have the lowest rate of corporate tax in the G7 by 2012, a measure that Bay St will love but that will do little for real economic development in a nation that badly needs a vision (zero poverty and zero carbon would be a good start). No, instead it is more of the same: Foreign investors, please come and create jobs for us! Look how competitive we are! Please!
Also on the “competitiveness” front is a renewed attack on regulation. For those who have been paying attention, the feds have played this game over and over again going back to the early 1980s. It is hard to believe there is any red tape left for a newly minted Red Tape Commission to cut, because once you look closely at regulations, they seem to be there for good reason, darn it. Previously, the government announced in the 2007 budget the Cabinet Directive on Streamlining Regulation, which places “competitiveness” hurdles in front of any new regulations, and subjects the whole of existing federal regulations to those standards.
Why then do we need a Red Tape commission? Like tax cuts, I suppose one can play this one over and over again and still have it sound good. But truth be told, this is not just silly politics from Ottawa. Things can indeed get worse. For example, there is this doozy on page 104:
The Government is taking steps in Budget 2010 to further improve the regulatory review process for large energy projects. Responsibility for conducting environmental assessments for energy projects will be delegated from the Canadian Environmental Assessment Agency to the National Energy Board and the Canadian Nuclear Safety Commission for projects falling under their respective areas of expertise.
So we’ll just not actually do any environmental assessment in the tar sands, on major new pipelines of natural gas, or on nuclear power. Great.
Galbraith Prize in Economics 2010
Posted by Marc Lee under PEF.
March 4th, 2010
Comments: none
I am pleased to announce John Loxley as the winner of the 2010 John Kenneth Galbraith Prize in Economics. John will be joining us in Quebec City during the Canadian Economics Association meetings at the end of May to give the Second Galbraith Prize lecture. Please join us if you can make it!
Below is an overview of John’s credentials for the prize from Jim Stanford.
On behalf of the PEF membership, congratulations to John, and a big thank you to this year’s JKG Prize selection committee (Mel Watkins, Armine Yalnizyan, Erin Weir, Brian MacLean and David Pringle).
****
John Loxley and the 2010 John Kenneth Galbraith Prize in Economics
Throughout his adult life John Loxley has worked to combine economic analysis, research, and publishing of the highest quality, with a deep personal commitment to social change and building the social change movements which will be the engine of change. It isn’t enough for progressive thinkers to simply put the ideas out there and hope that someone does something about them. We all have a responsibility to use whatever resources, platforms, and leverage we may have in our respective positions, to further in concrete ways the development of the movements and campaigns that will be essential in actually achieving the change that we envision. John Loxley, to me, embodies that necessary duality between intellectual work and nitty-gritty movement-building.
His academic research in the fields of development economics, international monetary and financial systems, and community economic development, have been recognized internationally as making a substantial contribution to progressive thought in those fields.
However, it is more through his enduring and important personal commitment to activism that John has really left a lasting benefit for social change efforts in Canada and around the world. Despite his deserved international reputation, John never shied away from getting his hands dirty in the trenches of social change activism and organizing. He has been consistently and heavily engaged in a range of different social change initiatives, projects, and organizing — ranging from his work with the North-South Institute and international debt justice initiatives, to his work co-founding the Choices coalition in Winnipeg and through it inspiring the Alternative Federal Budget (which this year will mark its 15th edition — an impressive and consistent record), to his personal involvement in a range of grass-roots economic development initiatives with First Nations communities in northern Manitoba. John is always respectful and collegial with his fellow social-change activists, and never “lords over” them on the strength of his intellect and reputation. He personally practices what he preaches, through his ongoing passion for and contribution to social change.
In addition to his personal research agenda and his personal involvement in a wonderful range of activist struggles and initiatives, John has also made a priority over the years of helping to build the University of Manitoba’s economics department into a well-regarded, collegial, and open-minded academic program. This involves his unique ability to reach across normal ideological divides in the interests of building an inclusive, diverse, respectful, and workable department that fills a totally unique niche in Canada’s academic economic world.
I don’t know anyone in Canada who better embodies the spirit of engaged, activist intellectual work that we seek to honour with this award, than John Loxley.
Jim Stanford
Climate inaction and BC’s budget
Posted by Marc Lee under carbon pricing, climate change, resources.
March 3rd, 2010
Comments: none
The 2010 BC Budget was a disappointment on the climate action front. Even as Premier Campbell waxed in the Globe about the impact of climate change on the 2010 Spring Games – with its sunny days, crocuses, daffodils and by the end, cherry blossoms making it fun for people on the street but a big mess up at Cypress Bowl for a number of events – the budget offered little assurance that this government still cares.
Instead, the budget better resembles the Olympic flame, whose massive size and burning cauldrons made a fitting monument to the oil and gas industry, a testament to our brazen capacity to burn fossil fuels. Subsidies to the oil and gas industry remained untouched in the budget, and in fact royalties from the sector are half of levels in previous years, in part due to royalty reductions from last August’s “oil and gas stimulus package” (like they really needed it). In addition, the budget’s transportation investment plan, 86% of provincial funds go to roads and bridges, including favoured projects like the Gateway highway expansion program and the “oil and gas rural road improvement program”.
There was some expectation that the government would announce a plan for the BC carbon tax, which hits $30 a tonne in July 2012, then hits a wall. If I was a business in BC, I would want to know the outlook post-2012 and what this meant for capital investments in the near term. But there was silence on that front, nor any expansion of the tax to cover major sectors not currently covered by the tax, including aluminum, cement, lime, and (you knew this was coming) much of the oil and gas industry.
From a climate justice perspective, more troubling is the failure to improve the low-income carbon tax credit, which more than offset the carbon tax for the bottom 40% of income earners in year one (starting July 1, 2008), and was roughly neutral in year two (July 1, 2009). The growth of the credit is not keeping up with the growth in the carbon tax, and will make the overall regime regressive as of July 1, 2010 – thus placing a greater burden on low-income folks who have done the least to contribute to the problem in the first place.
Since its inception, the carbon tax and revenue recycling regime was regressive at the top, meaning the top 20% of income earners get back more in tax cuts than they pay in carbon tax. The government’s unwavering commitment to use carbon tax revenues to fund personal and corporate tax cuts that are not needed and will have essentially no economic impact also deprives action on things that really would change behaviour, like improvements to service for public transit (the latter being a fascinating experiment and positive outcome of the Olympics). True, the government has put in funds for the Evergreen line, but hamstrung Translink’s ability to raise funds to actually get the project off the ground.
So overall, we need some regime change on the climate front if BC is to live up to its rhetoric and awards from environmental groups.
The budget does breath some new life into LiveSmart, a program for energy efficiency upgrades that ran out of money last year when it was oversubscribed. Too successful for its own good, the program withered. The budget provides new money of $35 million over three years, which is better than nothing but rather small. It is a lost opportunity given that unemployment rates are double what they were a year ago, and this work develops green jobs. There are some flaws in the program that still need to be fixed; for example, it encourages use of natural gas furnaces and hot water heaters that produce the greenhouse gas carbon dioxide when used.
In addition, the budget commits $100 million over three years to vaguely defined “climate action and clean energy”, which is linked to an upcoming Clean Energy Act to be tabled this sitting that has many concerned about the province running roughshod over local interests to ramp up private power production for export to the US (perhaps in conjunction with a new deal signed by Campbell and Schwartzenegger during the Olympics). The budget states that this money will be used to support investments (read: subsidize private sector) in biofuel production, new electricity generation and “infrastructure to support cleaner transportation choices”. While some of this may be a useful contribution, we will have to wait for more details when the new legislation is tabled.
Stock options, the buyback boondoggle and the crisis of capitalism
Posted by Toby Sanger under capitalism, corporate compensation, corporate income tax, economic crisis, federal budget, industrial policy, investment, productivity, taxation.
March 3rd, 2010
Comments: 9
As if there weren’t already enough reasons to eliminate the egregious stock option tax loophole, a column by Eric Reguly in this month’s Report on Business magazine highlights yet another. This reason helps to explain why we had such a booming stock market up to 2008, but little growth in real investment and productivity.
First of all, the stock option deduction, which allows those recipients of stock options to only pay half the statutory rate of income tax on their gains is:
Expensive, costing Canada’s federal government an average of almost $1 billion a year in foregone tax revenues annually during the past five year, according to Finance Canada’s tax expenditure accounts.
Unfair, with the benefits going overwhelming to those with the highest incomes, including CEOs, as Hugh Mackenzie has outlined in his annual CEO pay report for the CCPA. For example as I showed a few years ago, this tax loophole saved Robert Gratton, former CEO of Power Corp over $24 million in federal income taxes, just on one year’s income. This is a major reason why some of the highest paid people in our society pay tax at a lower rate than ordinary workers.
Distortionary and destabilizing, creating the misaligned incentives and pay structures that reward short-term risk taking that Bank of Canada governor Mark Carney identified as one of the key reasons for turbulence in the financial markets in a speech he gave two years ago.
Bu there’s an even more devastating reason why the tax loophole for stock options should be eliminated: it has been very damaging for the economy.
Research by William Lazonick, director of the Centre for Industrial Competitiveness at the University of Massachussets, shows that stock buybacks–using a company’s funds to buyback its own shares–has swallowed up an enormous amount of the income of major US companies. Canadian companies have also put increasing amounts of their income into stock buybacks and not into more productive investments, as I outlined a few years ago.
The stock buybacks have resulted in pretty blatant stock price manipulation, boosting stock price value for these companies, and paying off very handsomely for those who hold shares, which includes most CEOs and senior executives, especially since they only pay half the rate of tax on these gains. It’s been great for shareholders and other employees who also own shares, at least in the short-term.
The problem is that in the long-term it has bled the economy of real investment in the economy. As Reguly writes:
Every dollar spent on buybacks means one less dollar spent elsewhere-on R&D, on training, on equipment, on creating employment, on innovation. Ultimately, competitiveness and economic growth suffer.
This issue is related to the broader discussion we’ve recently had on this blog about the ineffectiveness of corporate tax cuts.
Lazonick ties this to a broader crisis of US capitalism’s “New Economy business model”, says we should ban stock buybacks where they are used to manipulate prices, and writes that the:
The government also needs to enact legislation that drastically reins in top executive pay, which means placing restrictions on stock-based remuneration, especially stock options.
We will soon see in the federal Throne Speech and budget what Canada’s federal government has planned to revitalize Canada’s economy coming out of this recession. But if it is just more faith in the same old simplistic laissez-faire Advantage Canada framework without fixing any of these problems, it will have very little success.
BC Budget 2010: Steady as she goes
Posted by Marc Lee under BC, budgets.
March 2nd, 2010
Comments: none
[Notes from Marc and Iglika]
For a document titled Building a Prosperous British Columbia, the 2010 BC Budget is underwhelming in its ambition. Budget 2010 shows a government talking a lot about the legacy of the Olympics but lacking any coherent vision of how translate upbeat sentiments into real improvements in British Columbians’ standard of living.
This budget says “steady as she goes”, but it is not clear where we are going, and whether the budget does enough relative to the challenges that may be ahead. The downside risks for the BC economy are serious: the US economy remains very weak, as is central Canada. The Winter Games are over, and in Olympics past have been accompanied by a drop in economic activity. And even though many feel we are in recovery territory, rising GDP coming out of a recession is typically accompanied by rising unemployment for at least another year. There doesn’t seem to be a clear economic development plan to provide jobs for those who lost theirs during the global recession.
The budget’s priority is to show a reduced deficit for 2010/11, funded by a smattering of spending cuts that will not help the province’s economic situation. This drop in the deficit by $1.2 billion (from $2.65 billion in 2009/10 to $1.4 billion in 2010/11) is partially offset by increased capital spending. So, a check mark for accelerated capital projects that push total envelope to $5.4 billion in 2010/11 for taxpayer-supported projects (up from $4 billion in 2009/10). There is a drop in other (self-sustaining capital projects), but an overall increase in total capital spending to $8.2 billion. Not all of this is well spent, such as $390 million this year for the BC Place roof upgrade.
The budget heralds a return to conservative budgeting practices, with numbers set out in a way that ensures the government will outperform the targets. Barring a major economic collapse, BC will rebalance the budget sooner than the stated 2013/14. For example, the budget estimates a deficit of $145 million in 2012/13, peanuts relative to more than $40 billion in revenues. But if resource royalties bounce back (as higher commodity prices seem to indicate) the shift back to surplus could happen even further ahead of schedule.
A number of ministries saw budget cuts, led by the Ministry of Forests and Range, with a one-year cut of 35% (a drop from just over $1 billion in 2009/10 to $641 million in 2010/11, and this is on top of previous cuts. This will hurt in smaller communities around the province. Other ministries received cuts that were small by comparison, typically in the tens of millions of dollars. Translated into public sector jobs, there is a continuation in the reduction in FTEs from peak of 36,277 workers to 32,000 by 2012/13.
The government introduced a few new spending measures, and health care gets a 4.7% increase above 2009/10, but we remain low among other provinces in terms of health care per capita. For regional health services this means an extra $396 million on the heels of a $360 budget shortfall last year. The new budget does not leave health authorities much room for enhancing seniors’ services or revitalizing support for mental health and addictions programs and other preventative initiatives that would improve the health of British Columbians and reduce long-term health care costs.
That health care is the big winner on the spending side reiterates how popular the program is, but also sets up a narrative that health care increases are eating up everyone else’s share. To show this, the budget makes a commitment to put all HST revenues to health care, yet another budget gimmick that those in the lock-up saw straight through (this is nothing new for BC, as the old PST was properly named the Social Services tax, brought in to fund health care decades ago).
BC families hit hard by the recession will see little from this year’s budget. The new property tax deferral measure announced applies to homeowners only, leaving out a large number of families with children that are priced out of the housing market.
In addition, this new tax deferral measure will just pile on the already high levels of household debt in this province, a two-edged sword. Fundamentally, BC families do not need yet another source of credit. They need jobs that pay living wages, they need affordable housing, high quality accessible early childhood education and care programs for their young children, and enhanced opportunities for their school-aged kids to participate in arts and culture as well as sports programs.
There is nothing in this budget to address child poverty, which is currently the highest in the country and has been so for six years running. Clearly, existing initiatives to support families with children are inadequate, but this budget does not address this gap. Similarly lacking is money to house the homeless or build new social housing. In fact, the Estimates show cuts in the Ministry of Housing and Social Development’s employment and housing initiatives.
The increased funding for community sports and the arts, $60 million over 3 years, is more than welcome but it falls far short of filling the enormous gap left by the discretionary grants cuts in last year’s budgets, much of which went to funding similar activities.
Funding increases in education and social services are small, barely keeping up with inflation and the increased downloaded costs. There are some additional funds for full-day kindergarten, and an additional $26 mil over 3 years on child care subsidies for low and middle income families, but no new operating funding to enhance the accessibility of child care spaces.
The budget announces additional ministry cuts to the tune of $320 million over the next three years. This comes on top of previous cuts announced last year – a total of $3.3 billion over three years in “administrative and other savings.” BC’s public service is already the leanest in the country as this recent CCPA brief shows and it is wishful thinking to assume that these cuts can be made without compromising much-needed public services.
Can P3s work?
Posted by Toby Sanger under P3s.
March 1st, 2010
Comments: 1
Two weeks ago I wrote a critique of a very poorly done Conference Board of Canada report on P3s (public-private partnerships). This conference board study ignored recent major criticisms by provincial auditors general and interviewed almost exclusively P3 proponents.
I’m happy to say that two business professors from B.C., Aidan Vining of SFU and Anthony Boardman of UBC, have recently written an excellent two page summary, Making P3s work of detailed research they previously published in a longer paper.
In this short summary they report:
In our review of the case study evidence, we came to two major conclusions. First, although risk transfer is, at least initially, a major posited goal of many governments, the evidence suggests that in negotiating (and renegotiating) P3 contracts, governments often failed to achieve significant risk transfer. …
Furthermore, when construction costs of P3s are unexpectedly high, government has to step in and bail out the project. As we are currently more aware, low probability, high cost events do occur with positive probability and do have a high cost.
Second, the transaction costs of many P3s are often high….
One surprisingly common occurrence is the dissolution of P3s more quickly than envisioned in the original contracts, either through government buy-outs, redesign of the contract, bankruptcy of the private entity, or some mix of these. Also surprisingly common is protracted conflict, with high contracting costs borne by one party, or both.
Our findings throw into doubt the social utility of P3s as a widely replicable mechanism for delivering public infrastructure, at least without extremely careful forethought by government. More encouragingly, however, P3s in Canada have worked reasonably in certain specific circumstances…
However, these circumstances are close to traditional “design-build-transfer” or “build-transfer” contracts. …
Given their spotty record, why are P3s so popular? There are often large political benefits from keeping capital expenditures off the government’s official budget or at least to transferring them to future time periods (and future politicians).
However, it is important to emphasize that the underlying economic reality of a public investment is not altered if it is not on the books. No matter how a project is financed, the government or users ultimately have to pay for its construction and operation.
Their report and this summary is a refreshingly reasonable antidote to the type of boosterism we’ve seen elsewhere.
(Thanks to Howie West for pointing this article out.)
Beware the Canadian Fiscal Model
Posted by Andrew Jackson under fiscal policy.
March 1st, 2010
Comments: 2
(I wrote the following to circulate to some European colleagues.)
Apparently former Canadian Finance Minister and Prime Minister Paul Martin is being tapped by the Europeans for advice on fiscal matters. “Former prime minister Paul Martin, finance minister in the 1990s when Canada’s dangerously high federal deficit was tackled and then eliminated, said Thursday he’s been engaged in “informal” discussions with several European ministers and senior officials seeking advice on how to confront that continent’s debt crisis. ….”There’s a huge, huge interest,” said Hamish McRae, a prominent columnist with the Independent, who recently advised readers that the route out of Europe’s debt crisis was by following Canada’s example. “Boy oh boy. Canada, along with four or five other countries, is attracting tremendous attention here.”http://www.ottawacitizen.com/business/Europeans+Paul+Martin+advice/2616493/story.html
Martin recently spoke to a Public Services Summit organized by the Guardian newspaper in the UK. The Guardian reported that he stressed the need to set and meet stringent deficit reduction targets while keeping the public on side. “For his plans to work it was important to get economic commentators onside, which made the budget credible with the public…Deficit elimination must be seen to be for people’s well being, he said. They will not support arcane economic theory.” http://www.guardianpublic.co.uk/martin-canada-budget-deficit-pss
At one level, Paul Martin’s reputation as a deficit and debt slayer is well-deserved. As Canada’s Minister of Finance from 1993 to 2003 (followed by a short term of just over two years as Prime Minister) he implemented the most sweeping fiscal consolidation ever under-taken in the OECD (rivaled only by Finland over the same period.) The total Canadian government fiscal balance (which includes provincial government balances) shifted by a dramatic 12 percentage points of GDP, from a deficit of 9.1% of GDP in 1992 to a surplus of 2.9% of GDP in 2000. Over the same period of economic recovery, the average OECD fiscal balance shifted by less than half as much, by 4.8% of GDP. After 2000, Martin shifted the emphasis to tax cuts, and government spending stabilized at a new, much lower, level of GDP until 2008.
One key aspect of the Canadian experience was exclusive reliance on spending cuts to balance the books. Between 1992 and 2000, general government total outlays fell by a huge 12.2%of GDP (from 53.3% to 41.1%) while total revenues stayed almost unchanged, falling very slightly from 44.2% of GDP to 44.1%. By contrast, the fiscal consolidation under President Clinton in the US saw tax revenues rise from 32.8% to 35.4% of GDP. Putting the burden on spending rather than on taxation meant that the burden of deficit reduction fell on the lower end of the income distribution, and this was a significant factor behind the pronounced increase in Canadian income inequality over the 1990s. Between 1993 and 2001, the after tax and transfer income share of the bottom 80% of families fell as the share of the top 20% rose from 36.9% to 39.2%.
Part of the decline in total Canadian government spending over the mid to late 1990s was cyclical, driven by a gradual fall in the national unemployment rate from above 11%. But by far the greater part came from a major retrenchment of the welfare state. Paul Martin cut federal transfers to persons by 1.9 percentage points of GDP. With elderly benefits virtually untouched, most of the burden fell upon federally administered Unemployment Insurance. Access to benefits was restricted, and the maximum benefit was frozen in nominal terms for a decade. Today, Canada has one of the least generous unemployment schemes in the OECD. During the current downturn, only one half of unemployed workers have qualified for benefits, and the maximum benefit is just 60% of average earnings. The average unemployed worker qualifies for a maximum benefit period of less than 9 months.
Martin also cut deeply into federal transfers to the provinces, which fell by 1.9 percentage points of GDP, 1992 to 2000. Most of the burden fell on social programs under provincial jurisdiction, notably public health insurance (which covers physician and hospital care) and welfare or social assistance which provides basic income support ton those out of work who have exhausted unemployment benefits. The old formula under which the federal government paid one half of welfare costs was scrapped, and welfare rates were slashed in real terms in almost every province to near starvation levels. Because of cuts to unemployment insurance and welfare, poverty rates remained at near recession level highs through most of the 1990s and the incomes of the bottom half of households rose very modestly, despite falling unemployment.
Martin’s cuts stopped the Liberal government from implementing their promise to introduce a national child care and early learning program, leaving working families pretty much on their own in seeking care arrangements. Worse, his fiscal revolution and abdication of traditional federal leadership in social policy made Canada a much more market-dependent society, moving it much closer to the US model. Between 1993 and 2002, the difference between the level of non defence program spending in Canada and the US fell from a huge 15.2 percentage points of GDP to just 5.7 percentage points.
A key feature of Canada’s deficit wars was the deliberate cultivation of fear. True, the net debt of Canadian governments was 59.1% of GDP when the Martin revolution began, significantly above the OECD average of 35.7%. However, as argued at the time by leading Canadian macro-economists such as Lars Osberg and Pierre Fortin (both past Presidents of the Canadian Economics Association), rising debt was not the result of over-spending but of the very deep recession, 1989 to 1991, which was exacerbated by exceptionally high real interest rates imposed by Bank of Canada Governor John Crow in search of the holy grail of zero inflation. Canada could have grown its way out of the deficit problem and had no real trouble financing government borrowing. But officials and the media cultivated acute deficit phobia. As documented by Canadian journalist Linda McQuaig in her book “Shooting the Hippo”, they even resorted to talking down Canada’s debt standing on Wall Street. The Canadian public were sold on the debt crusade in a highly cynical fashion.
The macro-economic consequences of Canada’s huge fiscal retrenchment were limited by a shift to easier monetary policy, and by a significant depreciation of the Canadian against the US dollar. Canada grew somewhat faster than the US between 1992 and 2000 despite fiscal restraint. But unemployment was very slow to decline, falling from 11.2% in 1992 to a still very high 8.7% in 2000. Average real hourly and weekly wages stood still over this entire period, under-scoring how far the economy fell short of potential. For most Canadians, the 1990s were experienced as a lost decade. On the business side, profits recovered quite strongly but real investment and productivity growth was sluggish at best.
As Paul Martin argues, Canada’s experience holds lessons for others. The key lessons are that deep fiscal restraint is hugely damaging to the well-being of working families, and that better alternatives exist.
(For more on the Canadian experience in the 1990s, see Todd Scarth (Editor) Hell and High Water: An Assessment of Paul Martin’s Record and Implications for the Future. Canadian Centre for Policy Alternatives. 2004.)
