The news so far has been pretty miserable. With a year of falling oil prices, month after month of stagnant (or worse) GDP growth and a week of wild market turmoil, Harper’s ‘sound hand on the tiller’ messaging is sounding a little hollow.
Is the Canadian economy in recession? It doesn’t matter. Voters think we are, and it’s clear they want their government to do something.
This news has encouraged Liberal leader Justin Trudeau to roll the dice and stake his campaign on a massive infrastructure-building program and three years (at least) of budget deficits. At the time of writing, NDP leader Thomas Mulcair is sticking with his story of fiscal prudence, but has been reduced to pulling fiscal rabbits out of a hat to support his party’s aggressive social agenda with the promise of balanced budgets.
Regrettably these ‘solutions’ are just bandages – feeble attempts to fight symptoms, rather than tacking the underlying economic disease.
So, what’s wrong with the Canadian economy?
Over the past few decades globalization has hollowed out the nation’s manufacturing base in Ontario while market forces have directed that we become primary producers of the rawest, lowest possible value-added (mostly energy) products. The result? We’ve become a ‘dig and deliver’ producer of expensive raw materials in a world flooded with cheap commodities.
Ironically, we used to have a much more balanced economy. The problems with Canada’s economy started with the fall of the Berlin Wall back in 1989. When Soviet Communism collapsed in the early 90s, the world rejoiced at the end of the Cold War. Then the Russian’s asked the really difficult question: what is capitalism?
Regrettably, Wall Street investment bankers (under cover of the Washington Consensus – a set of broadly free market economic ideas, supported by prominent economists and international organisations, such as the IMF, the World Bank, the EU and the U.S.) stepped forward to answer that question. Capitalism, they told the world, was about ‘free’ markets. Yes, it had private ownership of property and all that, but the most important message buried in the Washington Consensus was – Markets Rule.
The Washington Consensus radically shifted economic decision-making away from governments to the ‘market’. In practice, this meant that corporations were in charge of everyone’s economy.
But, corporations are not designed to take responsibility for society. They’re focused on maximizing returns to shareholders. As a result, the Washington Consensus has eroded our values. For example, Canadians used to care about human right abuses in emerging economies like China, but now that corporations are profiting from these abuses, we’re silent.
With corporations unleashed, the ‘market’ began to work its magic. The forces of globalization and various ‘free trade’ deals including NAFTA have shifted industrial type manufacturing from the developed economies to the low-wage emerging economies, while ‘temporary’ foreign workers with little or no economic rights flooded into developed nations placing downward pressure on wages and working conditions.
Bottom line, the Canadian economy is vulnerable today because ‘markets’ couldn’t care less about Canada’s, or anyone’s, standard of living.
So, what is the solution to this problem?
Well, essentially, society must re-assert its jurisdiction over unrestrained market forces while avoiding a retreat into protectionism. This is not a small problem, and at present we don’t have the ideological framework to reform the system properly.
Nevertheless, we could start by reforming our capital markets.
If Canadians want a more diversified economy, they’ll have to put their money where their mouth is. Unfortunately, doing so is almost impossible. If you’re one of the majority of Canadians who has a retirement saving plan (RRSP) or invests in mutual type funds, you’ll have first hand knowledge of the capital markets problem.
Ask your financial advisor about a fund that invests in local businesses that help create jobs in the community and they’ll look at you like you’re from Mars. Few Canadians realize that investing into the stock market through intermediaries is NOT investing in growth; it’s placing a speculative side-bet on the economy, and sharing somewhere between 30 to 50 per cent of the returns with your financial ‘advisor’, simply for that advisor doing the paper work.
Civilizations don’t happen by accident; they’re won and lost through the quality of our decisions, our personal commitment, and a lot of blood, sweat and tears. Thirty years of market idolatry has led us to this point of vulnerability – now is the time awaken and control our own destiny.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.