Prime Minister Stephen Harper likes to tell Canadians that his Conservatives are the only to party to be trusted with the economy. If you’ve watched Question Period, a speech by the PM or his finance Minister, Joe Oliver, or one of the ‘Economic Action Plan’ ads, you’re probably familiar with some of the talking points: ‘a steady hand’ in ‘fragile economic times‘, ‘keeping taxes low’, ‘a low tax plan for jobs and growth’, ‘tax relief for families’, ‘1.1 million net new jobs (since the depth of the recession in 2009)’, to name a few. On April 21, the Conservatives introduced their first balanced budget since the recession – as they had promised. They have accused both the Liberals and NDP of wanting to spend recklessly and raise taxes – recently alluding several times to Pierre Trudeau (Liberal PM from 1968-’79, ’80-’84) as a cautionary tale.
Canadians have largely been buying it. Over the decade they have been in power, polls have consistently shown that Harper’s Conservatives are trusted by more Canadians on the economy than are the other parties (e.g., recently here).
But does the Conservative economic record stand up to scrutiny? I would argue the answer is a clear ‘no’. In this post, I will briefly make my case in three ways: First, I will bust what I think are some of the most prominent myths about Harper’s economic track record and leadership. Second, I will argue why Harper’s policies, ideology and governing style are corrosive to long-term growth prospects in Canada, even putting aside his track record. Lastly, I will discuss the shortcomings of the recently released 2015 budget.
Myth 1: Canada weathered the global recession better than other G7 countries because of Harper’s leadership.
Facts: Canada weathered the global recession better than other G7 countries, yes, but did so in spite of Harper as much or more than because of him. Experts mostly agree that Canada has fared well for two reasons: (i) our banks had regulations preventing them from engaging in many of the risky lending practices that brought down the big U.S. banks (Harper himself has said this); (ii) we, like most other developed countries, used fiscal stimulus to cushion the fall in the immediate aftermath of the banking crisis, and we bailed out some of our big manufacturers (e.g. General Motors and Chrysler).
Canada’s banking regulations pre-dated Harper by decades. In fact, prior to the financial crisis, Harper was a proponent of deregulation. In 2006 for example, he paved the way for the introduction of the risky 40-year, zero-down mortgages that helped bring down the U.S. banking system – insured by Canadian taxpayers. Some have argued that Canada would have suffered much worse in the financial crisis had it happened a few years later. In fact, we may not even be out of the woods yet. Canada’s housing market is considered to be dangerously (~35%) over-valued, and the drop in oil prices is threatening to burst the bubble. In opposition and at the National Citizens Coalition, Harper was similarly a proponent of U.S.-style banking deregulation, and was a critic of Chrétien’s decision to block large bank mergers in the late ’90s – a decision which the IMF recently argued was partly responsible for how well Canada was able to weather the crash.
As for the stimulus, Harper’s government did enact it – for which they deserve some credit – but with two very important caveats. First, their initial planned response to the financial collapse – outlined in their November 2008 fall fiscal update – was to cut government spending (i.e. austerity), not to add stimulus. For some reason, everyone seems to forget this (maybe it’s the $750 million-worth of ads). They only enacted stimulus (a) after being told by the opposition that their minority government would be defeated if there was no stimulus in their budget (see summary of the dispute here), and (b) under considerable pressure from other G20 countries looking for a unified response. Second, the release of their stimulus was delayed by several months by Harper’s proroguing of Parliament in fall 2008 to avoid an election; and the stimulus itself was only partially rolled out, was much smaller (0.4%) than the 2% of GDP agreed to by the G20, and was heavily skewed towards Conservative ridings rather than economic need (Rick Mercer lampooned this on 22 Minutes). Had the Conservatives enacted austerity in response to the recession (as they quite likely would have had they had a majority) – Canada’s recovery could easily have looked more like the even more anemic recovery of the European Union – for which many economists blame austerity policies enacted by fiscally conservative governments in England and Germany, for example.
Myth 2: Conservatives balance budgets; Liberals run deficits.
Facts: With the exception of the Liberals from 1997-2006 under Jean Chrétien and Paul Martin, basically no one has balanced the federal budget since the early 20th century; but the Tories (Conservatives/Progressive Conservatives) have run some of the largest deficits (see figure at left from CBC).
Myth 3: Conservative governments produce better growth than Liberal governments.
Fact: Historically, it’s been the opposite. In fact, controlling for a number of other factors (including US growth and lagged US growth), a recent study found that growth was on average 2% higher with a Liberal government in power than with a Conservative (or PC) one. Of course, as with the budget numbers, there are a lot of factors beyond the government’s policies that could be at play here. For example, Tories were in power during both major global recessions of the last century (Harper, and R.B. Bennett in the 1930s) (though recall that the study controls for US growth). Another possibility, discussed by the study’s authors, is that perhaps voters prefer Conservative governments during tough economic times and Liberal governments during prosperous times.
A third possibility is that Conservative governments have performed worse economically than Liberal governments because they are generally more ideological, which reduces their ability to strategically pivot their policies to match the times. As a cartoon example, if one is willing to accept the notion that at least some level of government is needed for a strong economy, then it stands to reason that some times will call for larger government; others will call for smaller government. A party that is only willing to consider shrinking (or growing) government will be wrong a substantial fraction of the time. Past Liberal governments, for example, have bended their traditional economic centrism both to the right (e.g., Chrétien’s spending cuts of the late ’90s) and to the left (e.g., Pierre Trudeau’s Canada Health Act and National Energy Program). This focus on adaptability (and evidence) over ideology might explain why a 2008 study found that 40% of Canadian university professors identify as Liberal – more so than any other party and quadruple the number that identify as Conservative. Studies in the U.S. have found similarly low support among scientists for the Republicans (also considered to be the more ideological of the two parties).
Regardless of whether the apparent Liberal economic advantage is causally-linked or spurious, there is very little evidence, if any, to support a Conservative claim to be superior economic managers – at least historically. Canada’s growth and employment numbers under Harper certainly aren’t anything to get excited about.
Why the Harper government is a threat to Canada’s long-term growth
Whether or not you buy my take on Harper’s economic record to-date, here are three reasons Harper’s policies and politics are a threat to long-term economic growth in Canada.
1. He is eroding Canada’s political and informational capital
Good data and a healthy political system are key to good decision-making, and no PM has done more to erode both in Canada than Stephen Harper. Here are some of the highlights: He scrapped the long-form census – a decision which has already obstructed city planning and other policy-related research across the country. He has systematically dismantled the federal government’s science and science outreach capacity (see referenced chronicle here), especially on the environment file (he also appointed a Science and Technology minister who suggested he might not believe in evolution, and an Environment minister who doubted evidence of climate change). And last, but certainly not least, he and his Conservative government have taken the level of discourse in Parliament to a never-before-seen low (also being the only government ever found in contempt of Parliament).
Some people argue that Harper’s parliamentary antics are nothing new; but if you look back at old clips of Question Period, for example, it is plainly obvious that no previous government even comes close to Harper. Take the decision of deploying Canadian troops in combat for example – a life-and-death decision that you would think should be accompanied by a reasoned, non-partisan debate. Here are clips of Harper and Chrétien explaining decisions to go/to not go to war in Question Period. Here is Harper’s Parliamentary Secretary, Paul Calandra, addressing the same question. The differences are striking.
2. His instincts are often wrong and his ideological learning curve is slow
Here is a short list of ideological ill-fated economic (or economy-related) policies or positions that Harper has taken, and taken longer than most to abandon:
(i) Canada should have joined the war in Iraq (see his speech to this effect here, which he plagiarized from Australia’s John Howard). The U.S.-led campaign in Iraq found no weapons of mass-destruction and did nothing to help stability in the region (in fact, it arguably laid the breeding ground for ISIS), and cost the U.S. taxpayers over $2 trillion.
(ii) Third-party election spending limits should be abandoned. In the U.S., the 2010 Supreme Court’s ‘Citizens United’ decision dismantled third-party campaign spending limits – leading to an unprecedented explosion of money, and arguably corruption, in politics. Citizens United was a lobby group that sued the government over their right to run negative advertisements against Hillary Clinton during the 2008 campaign. Less widely known is that Stephen Harper himself launched a very similar court challenge against the government of Canada in 2000 (as President of the National Citizens coalition), but lost. As PM, Harper has eliminated public campaign financing (but waited to benefit from it first) and raised campaign spending limits, but thankfully has backed away from outright eliminating spending limits (as he once promised to do).
(iii) It is a good idea to ignore China. In his first three years in office, Harper decided to give China the cold-shoulder politically in order to posture for his base, citing the Chinese government’s record on human rights. While I share Harper’s concern for human rights in China, neglecting relations with China (and not many other countries with worse human rights records – including Saudi Arabia, which his government sells arms to) did not accomplish anything on that front, and might have had an economic cost (so the opposition argued). To his credit, Harper did eventually come around and engage with China on trade, though also ended up signing a secret 31-year foreign investor protection agreement (FIPA) that many experts think is a bad deal for Canada that could pose serious risks to sovereignty.
(iv) The economic future of Canada’s is as an ‘energy superpower’ – led by the oilsands. Harper’s Conservative government has made aiding oilsands development (which they call ‘responsible resource development‘) a centerpiece of their economic policy. Their strategies include billions of dollars in subsidies, tens of millions of dollars in advertising campaigns in the U.S. promoting the Keystone XL pipeline, dismantling environmental regulations, and muzzling and maligning environmental groups. This aggressive focus on oil has come at a cost to growth in other industries – especially manufacturing in eastern Canada. With oil prices in what seems to be a long-term low, Canada’s already anemic economic growth has stalled, and experts are questioning whether it was wise to stake our economic future on oilsands oil (e.g., here and here). Despite this, Harper’s government has so far shown few signs of changing their approach.
The ultimate cause of the recent fall in world oil prices is that the emergence of new, largely unconventional (e.g., oilsands, shale gas), oil and gas reserves is outstripping the pace of global demand growth. The proximate cause is low-cost producers (e.g., Saudi Arabia) refusing to cut production in order to protect their market share and force higher-cost producers to cut back or leave the market. Canada’s oilsands producers have some of the highest costs – making them most vulnerable to low prices and weak demand. Any global shift away from fossil fuels in order to combat climate change will weaken demand further, and there are signs of this happening – with the U.S. and China recently signing a major climate deal, and the upcoming Paris conference likely to usher in further commitments from the international community. What’s more, what little global demand exists for oil and gas in the coming decades is forecasted to occur mostly in China and other developing countries – not in the OECD. With Canada’s pipeline projects stalling and China recently signing a major liquid natural gas (LNG) deal with Russia, for example, Canada’s prospects as an oil-driven energy-superpower seem to be dwindling (see also here).
(v) Bully-tactics are effective at getting pipelines approved. Pipelines – to get oilsands products out of landlocked Alberta and into global markets – have always been a key piece of Harper’s oilsands development strategy; but nearly a decade into his term in office, none of the major proposed pipelines have been built. Arguably, one of the biggest reasons for this is the Harper government’s bully approach to selling the pipelines. In the U.S. for example, the Obama administration has repeatedly stalled on issuing a decision in response to pressure from environmental groups. Instead of recognizing these domestic pressures and working with the Obama administration to ease some of the environmental concerns (which might have been possible considering the alternative modes of oil transport – chiefly rail), Harper has instead opted for making bellicose public statements (e.g. that he ‘won’t take no for an answer’, a thinly veiled threat of a NAFTA challenge) and spending millions on U.S. ad-blitzes. These actions have made approving Keystone XL harder, not easier, for Obama to justify politically, and so he continues to stall – it now looking increasingly likely that he will ultimately not approve the project. In 2013, Harper did finally (quietly) offer Obama joint emissions regulations on oil and gas in exchange for Keystone XL approval; but so far this has been too little, too late. At this point, some question whether the economic case for Keystone XL still exists, or if the ship has sailed.
(vi) Ignoring climate change is good for our economy. The Harper government’s record on climate change is internationally renowned for how bad it is. Harper and his team often claim that emissions-reduction policies, such as carbon pricing or regulating the oil and gas sector, are bad for the economy. Yet, aside from the damaging effect of Harper’s climate policy on pipeline prospects and the oil industry’s global reputation, evidence continues to mount that combatting climate change – and leading rather than lagging on this file – is good economics. Even Preston Manning – founder of the Reform party – and other prominent conservatives are recognizing this evidence.
The National Roundtable on the Environment and the Economy (which Harper shut down in 2012) estimated that climate change will cost Canada’s economy $5 billion annually by 2020, and up to $43 billion annually by 2050. Since Canada signed Kyoto in 1997, economists have been saying that meeting its emissions targets does not have to hurt the economy if policies are implemented immediately and steadily. Indeed Harper’s own emissions targets for 2020 could have been achieved with no economic ill-effects; they won’t be – even Harper now says so. Meanwhile, British Columbia has had a carbon tax since 2008, and has seen both its emissions reductions and economic growth outperform most other regions of the country. The IMF – hardly a bastion of leftism – has called on all countries, including Canada, to adopt carbon taxes and use the revenue to reduce other taxes. They estimate that a well-designed carbon tax could increase Canada’s GDP by 1.4%, reduce carbon emissions by 15%, and reduce air-pollution-related deaths by 25% – hardly the ‘job killer’ the Conservatives describe.
The bottom line is that the world is headed towards more and more climate action – because it’s good for the economy, the environment, and human health. In the long run, this will mean more and more demand for low carbon technologies, and less and less demand for fossil fuels. That doesn’t mean we should suddenly stop extracting our fossil fuels altogether while there’s still demand, but it does mean that getting out in front of the rest of the world on building a low-carbon economy will create long-term economic opportunity for us, and lagging behind will create long-term economic pain – as our transition will have to start more abruptly, from a position of greater disadvantage, the longer we wait.
3. He has poor character
As I discuss in a previous post, a politician’s character is important in determining how well they govern – perhaps more important than their platform. A politician governing in their own personal interest, rather than the interest of society, is bound to make bad – but politically opportunistic – choices. Richard Nixon, for example, sabotaged Vietnam peace talks in 1968 – causing the war to drag on for five more years and kill millions – in order to win the U.S. presidency. Harper has yet to make a decision this disastrous, but few – even among Harper’s friends – debate the charge that he is ruthless, vindictive, and hyper-partisan, like Nixon. Tom Flanagan, Harper’s political mentor and former chief of staff, provides the following description of Harper’s politics in his new book:
“He believes in playing politics right up to the edge of the rules, which inevitably means some team members will step across ethical or legal lines in their desire to win for the Boss. He can be suspicious, secretive, and vindictive, prone to sudden eruptions of white-hot rage over meaningless trivia, at other times falling into week-long depressions in which he is incapable of making decisions.”
Harper’s pettiness has already had consequences on economic policy – the delayed and inefficient stimulus (see above) being one; his carbon pricing policy arguably being another (the Conservatives actually supported North America-wide cap-and-trade in their 2008 election platform, but then backed off after their attack ads on Stéphane Dion’s ‘Green Shift’ proved effective). We should not underestimate how far down Harper is willing to drag Canada’s public interest to protect his own. The ‘Fair Elections Act‘ is a prime example of this.
Budget 2015: Inefficiency, inequality, and low-growth policies
Joe Oliver, Harper’s Finance Minister, recently tabled his government’s election-year budget – one that is ostensibly balanced. This budget has received some positive reviews (e.g., here); others negative (e.g., here); others mixed (e.g., here). In his post, Ian highlights what he thinks are some positive measures in the budget. To be clear, I also do not think this is a disastrous budget that will blow up the Canadian economy. However, I do think that most of the new measures introduced in this budget fail the economic sniff-test, including some that Ian defends. Aside from the copious accounting gimmicks, I see three troubling themes in this budget: inefficiency, inequality, and low-growth policies.
Canada’s already weak economic growth has stalled because of the oil price collapse (our economy shrunk in January). We need public investments to stimulate the economy, and the feds are currently in a strong fiscal position (low debt/GDP), while the provinces are not. This, combined with the fact that the costs of borrowing are at historic lows, means that balancing the 2015 federal budget shouldn’t have been a priority to begin with. Thus, if they were still insistent on balancing the budget, it would be imperative for their tax and spending changes to be efficient – producing high returns on each dollar invested (or not collected).
But what we see in this budget – and have seen throughout the Conservatives’ tenure in office – is inefficiency. The big-ticket tax cuts – income splitting and doubling tax-free savings account (TFSA) limits (at least the versions offered)- will cost billions, will benefit few, and won’t create jobs. This high cost and low return are one of the reasons the late Jim Flaherty, Harper’s previous Finance Minister, opposed income splitting. The TFSA limit increases could be far worse. Some experts fear they might be a ticking fiscal time-bomb for future governments – one Oliver flippantly suggested Harper’s granddaughter can worry about. There’s a new small business tax cut, which also may or may not create jobs. Corporate tax cuts – in Canada and elsewhere – have a dismal recent record of job creation – explained here by Forbes. Those same billions, if spent on infrastructure (which is in need of upgrade across the country), education, or research, for example, could create much more of the ‘jobs, growth, and long-term prosperity’ that the Harper Conservatives claim to espouse. They are promising some infrastructure spending in this budget, but much of it is backloaded to future years (e.g., their much-touted transit funding starts in 2017-2018) – no doubt so that it doesn’t count against this year’s bottom line.
Inequality is also a major theme in the 2015 Conservative budget – especially inequality among generations, and inequality among seniors. Much has been made already of the inequality in income splitting and TFSA limit increases. Income splitting benefits fewer than 15% of families – the wealthy disproportionately (this is the main reason Jim Flaherty opposed it). Increasing TFSA limits, too, will benefit primarily the wealthy (who have $10,000/year to save) as well as seniors. Seniors – declared by many pundits to be the budget’s big winners – will also benefit from decreases in the required Registered Retirement Income Fund (RRIF) withdrawal limits. But the budget doesn’t necessarily even benefit all seniors – again favouring the rich – but ignoring the chronically underfunded Canada Pension Plan and Old-Age Security, which lower-income seniors depend on (and also ignoring rising inequality among seniors). There is almost nothing in the budget for young people – aside from a small increase in student loan eligibility – despite persistently high unemployment and underemployment among Canadian youth and growing intergenerational inequality. But young people don’t vote, and when they do they often don’t vote Conservative.
There are other inequality-magnifying provisions that have received less attention. For example, the budget saves $1.8 billion dollars by keeping Employment Insurance (EI) premiums higher than payouts (EI is supposed to be revenue-neutral). This amounts to a tax hike on labour – being used to pay (among other things) for a tax-break on the savings (capital) of the rich. Capital in the Twenty-First Century indeed.
Trade policy – Harper’s silver lining?
Credit where credit is due: trade policy is one area where I think Harper has done decently for the most part (FIPA with China aside). His government has advanced trade agreements with the E.U., South Korea and India, among others, and appears at this point open to considering the concessions needed to join the Trans-Pacific Partnership (TPP). Free trade deals aren’t always sunshine and rainbows, particularly for the smaller countries (which tend to lose in arbitrations) and smaller businesses (who don’t benefit as much from export opportunities but can be squeezed by new competition); but for the most part, they do grow the pie, and the global economy is headed generally towards more trade, not less.
But even if all of Harper’s major trade deals are ratified (which is far from certain), his economic legacy will still be one of slow growth, high deficits, fiscal inefficiency, rising inequality, ideology over evidence, and harm to long-term growth potential. It’s a record that they should want to run from – and voters should want to chase them out of office for – if someone would only shine a bright enough light on it.