In Toronto, the Union's Arguments Don't Smell Right

This article sums up the public unions’ arguments against the City of Toronto in the current strike. Basically, it argues that people are blaming unions for the economic woes of the world instead of the greedy capitalists that have brought us all to our knees. Instead, the writer suggests, we should be thanking unions for fighting the good fight.

This article explains why most of the city’s residents are not on their side. When people are losing their jobs and tax money is flowing out like water over Niagara Falls, it’s hard to side with people fighting to keep perks that are unimaginable in private-sector jobs and are being fought for using the public’s services as a bartering chip.

But of course, things are never so simple. This isn’t about the lack of appreciation for unions or an opportunistic ploy by the City to drive down public sector wages and benefits. It’s about dealing with a new era of economic realities. Whether bankable sick days are fair or not is not the question; the question is whether we, as a City, can afford such perks. The City of Toronto has been poor for a very long time and services, investments and the quality of life have been in decline. That’s not to say there haven’t been some positives, but they’ve been inadequate in the face of the City’s growing challenges.

Debates between unions, whether it’s public sector or private, and employers are rarely approached the way they should. Too often it’s a negotiation between the union vying for all it can (whether it’s saving what they’ve won previously or pushing for more) and the employer pushing the opposite. These approaches are understandable but not very effective for everyone involved. First and foremost employers and unions must view themselves for what they are: parts of a larger whole, of which the success of the whole is the vehicle for achieving what both sides want.

It seems rather obvious to me that a successful company depends on happy and productive employees, so there’s not much incentive to take advantage of them. Maybe that was the case a hundred years ago but we’ve come a long way since then, and mostly because of unions. Unions helped establish a balance that was sorely needed and was much to the benefit of the economy as a whole. It’s balance that’s the essential ingredient, and when the company or City starts to struggle, the two sides should work together to form a plan that works for both – it’s still negotiation, but with an eye on a mutual prize which is an easier goal.

When unions complain that they didn’t cause the recession and shouldn’t have to pay for the mistakes of greedy capitalists and authors of massive fraud, they’re completely missing the point. It may not seem fair but, for the workers of Chrysler or GM, for example, it doesn’t mean much when the enterprise goes down the tube. For the public unions of Toronto, the causes of the economic problems may have been someone else’s fault, but the fact is the City’s revenues are down and we, as a City, cannot afford to pay out the same level of perks. I would argue that a healthier balance has been needed for some time regardless of the economic conditions that surround the current impasse, but whatever reasons have gotten us here a new economic relationship is needed for the health of our governance.

The public sector is a tricky game, since any benefits to workers are paid with taxpayer money. It should stand to reason that if the public is satisfied with the services they’re getting for their money, then there’s peace in the land. While Conservatives do all they can to undermine the role of government, Canadians in general are willing to pay their fair share of taxes to ensure drivable roads, tidy parks, a helpful selection of public services and dependable safety nets, and a decent livelihood for those who work to deliver those things. When public opinion reaches a five to one opposition against the union (as the article supporting unions acknowledges), then clearly things are not in a balanced position.

As mentioned here, the union is not likely to meet a more favourable mayor, so if they’re ever going to strike a deal that helps the City balance its budget and keeps as much of the workers’ perks as possible, this is likely the time. But as usual the view is not on the whole, it’s only the benefit of their part, and for now they’re mostly on their own.

Liberals Are Playing Out The Larger Questions Of Canada's Federalism

Recently, I argued that the Senate is necessary since provinces can't adequately keep a federal majority government in check. However Danny Williams might prove me wrong given his influence in a minority setting. I don't care for his tactics but I have to admire the results, even if they're causing problems for the Liberal Party.

The skirmish between the Newfoundland MPs and Ignatieff, which resulted in the interim leader's acquiescence to the east coaster's demands to vote independently on the budget, is part of a larger debate on how Canada should be governed. Since the rise of Quebec Separatism and Western Alienation we've had an enduring debate between the tenets of centralization and decentralization when it comes to our federation. The Liberal Party has embodied this most with deep rifts between the so-called Trudeau/Chretien Liberals and their advocacy for a strong federal government versus the Turner/Martin Liberals who favour asymmetrical federalism.

Ignatieff's proposal to recognize Quebec as a nation in 2006 set off yet another round of debate about how much power and respect should be bestowed on the provinces. Ignoring the clarity of the constitution on what level of power each order of government has, the underlying debate is whether power allocation is a zero-sum proposition or can be something else. I suspect Sir John A. Macdonald and Georges-Etienne Cartier thought our federal arrangement was a way towards a stronger Canada, but along the way that message seems to have been lost in a "winner take all" political climate. As I argued once before, the creative tension of our federal-provincial relations has worked to a point but is rife with problems; looking at and even trying new solutions is not a bad thing.

I have my reservations about how this compromise will impact Ignatieff's ability to lead and how it will embolden Premiere Williams to pursue his wants even more aggressively. Personally, I prefer a unified message from a party because then you get a consistent line between what you vote for and what you get (as opposed to the US Congress where it's anybody's guess due to the "clientelistic" nature of the House). However the concerns of greater regional discord are a little exaggerated, since we've had that since before confederation. The questions now are whether Canada still has a place for a big tent party like the Liberals (or are we headed towards coalitions of regional parties?) and whether Ignatieff can create a productive relationship with the provinces that doesn't get bogged down in power struggles.

Canada's Choices on Afghanistan Tied to Obama

As I’ve stated in the past here, here and here, I’m a supporter of the efforts to rebuild Afghanistan and Canada’s role within that effort. During the election when Harper and Dion both committed to pull Canada out of Kandahar in 2011, I accepted this on the grounds that Canada’s troops need a break from the combat heavy region, and also in that in the absence of enough commitment from the other NATO states to help get the job done, continuing to subject our troops to death and strife with little prospect of gain was becoming untenable. The mission may be noble and justified, but if not enough allies are willing to see it through, then there’s no justification to continue beating our heads against the wall.

As noted in the Star today, Obama’s entry on the scene and his promises to make Afghanistan a priority over Iraq changes the landscape. We’ll have to wait and see how able he is to make the changes he’s promising, but if the US wades into Kandahar in a more substantial fashion it may make Canada’s role there less frustrating.

There are, however, other nagging considerations that continue to cast doubt on the wisdom of Canada pressing on in a combat role past 2011. First is Pakistan, from which the Taliban continue to energize and prepare for their excursions into Afghanistan. This is a matter not easily solved, and the preferred diplomatic route will be long and ultimately doubtful as Pakistan, so far, seems either unwilling or unable to police its outlaw regions and porous border.

The second factor is the strategic approach being utilized. As much as development and reconstruction work have been emphasized, reports are this has been slow going due to the required emphasis on defense and security issues. Also, there’s the lack of progress on the “hearts and minds” battle, as the Taliban seem to have no problem refreshing its resources. Finally, the ultimate desire to have Afghanis establish their own police and army to the extent that they can take over and maintain security on their own continues to be a distant prospect.

Obama has a couple of choices, the first being John McCain’s cherished “surge.” There is no question more troops can overwhelm insurgents and, at the very least, get the security issue under control – at the very least Iraq has shown the effectiveness of this tactic. Getting the security matter under control solves the first of the issues related to strategy. But what’s not clear, in Iraq or elsewhere, is whether a heavier military presence will help or hinder the “hearts and minds” aspect. As I noted recently, soundly defeating a weak opponent isn’t necessarily a recipe to long term peace. It is therefore critical that military action is purely aimed at maintaining order so development and some semblance of normal living can start. There should be no notions of chasing the Taliban into Pakistan or even of ferreting them out of their Afghanistan hiding spots. Keeping them wandering the empty expanses of the countryside is ok for now, as long as the towns and roads are kept safe. What’s needed is for Afghanis to see a path to peace and the establishment of their own society, replete with their own economic, social and cultural activities. They need to see the NATO forces as partners in their success and not a source of conflict and destruction. Then, with security and civil development on a positive path, the chances rise of establishing an effective Afghani security force. More importantly, Afghanis may start to reject the Taliban as the least desirable option and take the wind out of their sails.

So, where does this leave Canada? The choices facing us will hopefully become clear because, let’s face it, it all depends on Obama and the Americans’ next steps. The hope is that more American focus in Kandahar achieves a quick result and 2011 arrives with more focus on development than combat, and Canadians can rally behind our forces doing the work we’d rather they’d been doing all along. The harder option is a lack of progress on the security front and a continuance of the draining combat work. In that case the 2011 withdrawal plan should stand.

Obama, as has been well documented by the media, represents a hope for more than just Americans. Solving the economic crisis and winning two wars simultaneously is no slight challenge, so Canada needs to stand by and be willing to help if and when his hope turns into progress.

A Letter to City TV News, Toronto on its dismal reporting

I would like to express my disappointment in the story done Thursday evening related to the plane in New York that landed in the Hudson River. The story I object to was a discussion on the Toronto Island Airport and the potential for bird's causing plane crashes.

The issues I have with this story are:

• officials in New York had pleaded for the media not to speculate on the cause of the emergency, yet you chose to take the speculation of birds and run a story on it


• birds affecting take-offs and landings are infrequent and rarely lead to drastic emergencies


• the runway at the Island Airport requires incoming and outgoing planes to travel over the water and nowhere near inhabited land, so the risks of crashes impacting nearby residences are minimal at best


• crashes at the Island airport have been rare, not to mention the planes are small and not jet-propelled and therefore cannot reach the level of risk seen in the New York incident.

This story fulfilled the worst stereotypes of the media of being irresponsible, fear-mongering, sensationalistic, misleading and ultimately pointless. City TV, in my opinion, has gravitated to more of this kind of journalism and it's a disappointment to see what once was a progressive and original program go through such a demise (Why do we need a story practically every night warning us of some way we can be harmed, diseased and defrauded? Ok, we live in a world of risk, this isn't news. Save those stories for the things that are significant and might impact more than a handful of people.)

Constitutional Amendment Is The Best Option For Solving Our Senate Problem

In a parliamentary system a majority government wields phenomenal power. Such power can destabilize a country over the course of an elected term with radical or ill-founded policies and actions. For that reason alone a check on that power is needed. A minority opposition cannot fully provide this as they cannot stop legislation. Provinces provide the balancing force in what Trudeau called the “constructive tension” of our federal system; but they too cannot stop federal legislation. The judiciary must let the government wield its power to the full extent of its constitutional rights, which are multitude. Therefore the Senate is the necessary check on government power and is an essential normative element of our government.

In reality, our Senate leaves much to be desired. It has often been an effective and productive reviewer of legislation and a source of beneficial and insightful ideas and opinions, but institutionally its structure represents the worst of patronage, partisanship and non-democratic representation.

Therefore reform is needed far more than the status quo or abolition. Trudeau gave us the means to achieve reform and it is suitably difficult and requires broad consensus from both our elites and the citizenry. Mulroney tried reform but packaged it with other things that ultimately proved unsupportable by enough people. Harper’s legislative, incremental approach requires the support of the very institution he’s trying to change, and therefore faces the dubious prospects he’s already incurred. Stacking the Senate to achieve his ends only serves to reinforce the very problems he wants to solve. Finally, legislative changes are susceptible to future changes by other governments, so it’s not an ideal solution for changing our government institutions.

We need constitutional reform with the specific and limited intent to change the Senate. This course should not be feared as Senate reform is not just a Western Canadian issue; it’s largely supported by Canadians across the country.

Amendments should include the following:

• limited terms – I’m happy with the eight years proposed by Harper;


• elections – the patronage and partisan control must end;


• removal of age and property requirements - let's get with the times;


• geographic representation that counterbalances the population imbalances of the country – I support an even distribution like in the US; and


• reduced size – I don’t see why we need more than two or three Senators per province and territory.

The recent and past arguments over the selection of Senators and the role of the Senate must be replaced with real and productive debate that leads to constitutional reform that is put to the people and provinces for approval. Otherwise this debate will continue to undermine the legitimacy and energy of our government.

A CAVEAT: Electoral Reform
Electoral reform that increases proportional representation (I prefer a mixed system to pure proportional) will make minority parliaments more likely. Normative minority parliaments provide a natural balance in political power and lessen the need for the Senate. However, no electoral system guarantees the abolition of majorities, so the need for the Senate’s check on majority power is not entirely removed.

Peace Requires A Very High Road

Marcus Gee paints a compelling justification for Israel’s actions in Gaza by highlighting the litany of poor choices Palestinians have made over the past few years. However, Eric Margolis notes in his article that repeatedly bombing and punishing Palestinians is not going to achieve anything.

The Middle East is similar to a theme we’ve seen played out in Africa, Afghanistan and many other failed states around the world. Usually these states are left destitute and bereft of progressive and capable leadership after foreign occupations or military incursions, bad luck or neglect from the developed world. Like poor neighbourhoods in a city, gangs take over in representing the people with an agenda to antagonize (whether authoritarian or democratic, their leadership is a compromise). Until help is given to ensure security and development, a cycle of violence is sustained. A very high road must be taken by the West to balance protecting itself without escalating the cycle. This means measured responses to provocations balanced with sustained support for positive steps towards peace and development. The Middle East needs to get back on the high road.

No Money? Sorry, No Choice.

In her article, My Money, My Choice, Rebecca Walberg attempts to posit an anti-abortion argument along the lines of fair public policy.

“Abortion is not a private act so long as you and I are paying for it. Removing public funding from procedures done for reasons other than medical necessity is a win-win: Pro-abortion advocates should be pleased this private act will be chosen, performed and funded entirely in the private sphere. Those opposed to abortion will take some small comfort in knowing they are not subsidizing it, and that raising the cost of an abortion will reduce its incidence. There simply is no justification for continuing to ask all Canadians to pay the bills when women exercise a personal, private choice.”

Ms. Walberg’s argument is spurious and insidious. It’s a poor assumption that all women who choose abortion would have the money to pay for it. The public funding of abortion is intended to ensure there is choice for all women, and not just those who can afford it.

Is it not curious that a pro-life article from a Winnipeg writer appears in the National Post around the same time there are rumours of a behind-the-scenes movement from a Winnipeg MP to revive the abortion debate?

Is the US Trading The Urban Brownfields of the 1970s for the Suburban Ghost Towns of 2009?

If this isn’t just another example of the poor design philosophy behind modern suburban subdivisions.

“…transformation within the carefully delineated form of a subdivision is not so simple. These insta-neighborhoods were not designed or built for flexibility or change. So what to do with the abandoned houses, the houses that were never completed or the land that was razed for building and now sits empty?"

Economic Crisis Part III – Growth Motivation and Corporate Bailouts

This is the third of three posts that takes a look at the current global economic crisis:

Part I – looks at historical crises and the solutions employed and the trends that led to the current crisis;
Part II –looks at the solutions for the current crisis;
Part III – this post looks at the bailing out of big business and whether we’re going at this the right way.

In Part II I referenced a need to focus less on growth as a positive means of rebuilding our economy. I acknowledge this is a somewhat controversial stance. In a market-driven society competitiveness is essential to ensuring innovation, wealth and the efficient allocation of resources. Deficiencies in any of those three create burdensome problems for a state in ensuring quality of life for its people. However competitiveness inherently requires growth. Otherwise, how else do you know if you’re winning in an economy if not by making more money than your competitors? Aye, there’s the rub. In our embrace of capitalist markets and refutation of equalizing socialist economies, we’ve become obsessed with the idea that more is better. Of course, this is true to a large extent, but when taken to its ultimate ends it proves to be unsustainable. We will do ourselves more good if we change the lens in which we look at corporate success in North America. I’ll take this moment to make my obligatory qualification that I am not an economist (after that opening, you’re probably laughing and saying, “yeah, no kidding.”) and I invite any and all feedback on my observations and suggestions.

My take on the roll of growth and how we build a sustainable and stable economy is a way of introduction to whether the bailout of big companies is a good idea or not. The failure of the likes of AIG, Lehman Brothers and now the big three American automotive companies has made this a pressing question. Other countries will invariably face the same question as their mega-companies struggle through a prolonged downturn. The question of bailouts is largely a political one since from a free market perspective companies must be allowed to fail to ensure innovation, efficiency and competitiveness. Therefore bailing out companies is about saving jobs or sustaining international competitiveness in a particular market, industry or just in general terms of reputation. In the end, this question will be answered by political climate, the depth of pain resulting from corporate failure, and the weighing of the costs of propping up the company versus helping the unemployed that will result or in investing in a form of stimulus. To be clear, bailouts are not a form of stimulus, it’s about maintaining the status quo and in many cases about setting both the company and the economy back.

So the answer on bailouts will be answered on a company-by-company basis. Due to the nature of this crisis and the central issue of credit scarcity, having AIG and other financial companies go down would have been catastrophic to the US’ domestic economy as well as institutions around the world. However, the US automakers don’t involve the same sort of risks, just a loss of American prestige, pride and jobs. Initial indications are that these are too sensitive at this point in time and they’ll be saved. In Canada, a precarious Harper can’t afford to lose votes in Ontario so the money is forthcoming. Other industries and companies will have to wait and see if they rank as high or whether they can win a “fairness” argument – as in, the government can’t pick winners and losers, if one is saved then all have to be saved.

So let me return to the growth issue, as it’s behind questions that have been bugging me. If these companies have become too big to fail, what have we gained in having such massive corporations? If GDP growth and accumulation of wealth through real estate and stock markets can be erased in a matter of hours, days or months as soon as the system is destabilized, how secure are we in our quality of life?

The last time the question was raised of what to do with dominant companies was during the progressive American era at the turn of the twentieth century. However the concerns were about the effective workings of open markets and the interference of monopolies, a situation that was addressed by the implementation of anti-trust laws. So far I’m not hearing anyone question whether there’s a need to regulate against large corporations – the mantra continues that bigger is better.

Anti-globalization proponents express fears that these large corporations hold undue influence over governments and the welfare of people around the world. Multinational corporations are hard to regulate when they move money and goods around the world in unprecedented levels. This is, they argue, a diminution of our sovereignty and democratic power. But while these are valid, if not overstated, concerns, they don’t speak to the economic risks of dealing with these companies in times of economic turbulence.

So how do we reconcile the essential need for growth to drive a free market economy versus managing the risks of failed mega-corporations? In the face of these questions options around limiting the size of corporations becomes an attractive option. Is there any reason growth can’t be attained when spread across more corporations within an industry? The most likely argument against this is one of efficiency. However I’m not sure large corporations win the efficiency contest – mergers and acquisitions are incredibly counter-productive in terms of productive capacity. They survive instead through economies of scale which affords them pricing advantages both in buying and selling products. I also have to think a few more factories, presidents, vice presidents, and all associated personnel per industry would not cause much drag on our economy.

This would also require a recalibration of our expectations of growth. If the president of a company maintains market share and turns a decent profit without growing either, maybe he or she shouldn’t be fired? Maybe then the need to merge, acquire and grow doesn’t become so imperative? Maybe private companies don’t feel as compelled to go public and turn their companies over to managers who don’t blink in selling the company to a larger competitor (and in Canada, often to a foreign one)?

Competitiveness and innovation would still exist and companies would fail if they couldn’t keep up, so the benefits of a free market economy would still prevail. It’s just that we would have to set our sights a little lower. Stop bemoaning the lack of Canadian multi-national corporations. The American Dream would change from a mansion to just a very large house with a nice lawn – or perhaps just three houses instead of seven. CEOs would have to live on incomes only one hundred times larger than their average employee rather than the 364 times more they made in 2007.

This isn’t about limiting growth, it’s about managing it. It’s about creating an economy where the failure of one or two companies doesn’t lead to the failure of twenty more; where the drive to win doesn’t lead to the packaging of unsustainable debt packages so money can be made on the same dollar many times over; where a country like Canada doesn’t have to locate all its people in a few urban centres in order to accommodate companies that are nothing but branches of companies owned in other countries; and where an entrepreneur can grow a business and be successful and then not be forced to sell it or expand rapidly in order to avoid being priced out of business. Managing growth is about ensuring it’s sustainable and stable. It will be interesting to see if this crisis grows to an extent where extraordinary changes in our system occur.

UPDATE: As I give this further thought - because I acknowledge I struggle with this whole idea of limitations on corporate growth - I realize one potentially fatal flaw is that it mimics the ignorance of human nature that brought down communism. A source of happiness and satisfaction for us is the pursuit of goals. Corporations, as the product of human endeavour, will undoubtedly be led by individuals whose very nature will propel them to get bigger and bigger simply out of the satisfaction derived from the achievement. Practical management of risk is ensuring controls are in place to prevent failure. I see the existence of these huge corporations as being detrimental to the efficient use of our resources and am searching for a balance between allowing business to succeed and excel while not risking our stability and security in then trying to sustain these massive companies in times of economic upheaval. This post is one suggestion as I work through possible solutions.

Economic Crisis Part II – What Should We Do?

This is the second of three posts that takes a look at the current global economic crisis:

Part I – looks at historical crises and the solutions employed and the trends that led to the current crisis;
Part II – this post looks at the solutions for the current crisis;
Part III – looks at the bailing out of big business and whether we’re going at this the right way.

As the Conservatives craft their budget – possibly the most crucial political document to be issued by a Canadian government since the Free Trade Agreement – I have to ask, objectively, what should be in it? As governments around the world talk of, and provide, stimulus packages of staggering proportions; and Harper has been brought to his knees under the coalition’s demands for stimulus, the discussion around the effectiveness and application of government stimulus has been more political rather practical.

I have indicated my preference in the past for active government in two separate blog posts: Liberal vs. Conservative Economic Ideologies (I would also like to point to the comments section where I am engaged in a conversation about the role of government) and Liberal vs. Conservative Economic Ideologies – Liberalism Still Winning. My arguments in these posts are that when governments are engaged on an ongoing basis in ensuring a distribution of capital to assist the disadvantaged, regulation of markets and the responsible balance between revenue and expenditures then a nation experiences a better standard of living. However, when this isn’t done and there is severe economic turbulence, then what can government do to help? I’ll take this moment to make my obligatory qualification that I am not an economist and I invite any and all feedback on my observations and suggestions.

Government impact on the economy works through two avenues: fiscal and monetary policy. Fiscal policy is the employment of taxes and spending. Monetary policy is the control of the money supply and the price of money through interest rates. The interesting thing history teaches us is that massive government spending – fiscal policy - hasn’t worked all too well in the past, but that may be too general a statement as spending has been utilized in different ways. Central banks have employed a monetarist approach by slashing interest rates practically to zero in recent weeks and are running out of room. Despite these moves credit has not loosened up and individual spending continues to decline. As this option dries up it really only leaves, for governments, the fiscal approach of either cutting taxes or increasing spending – or both.

I have argued strenuously in my past posts on economics that tax cuts are an ineffective means of economic stimulus. Tax relief should be reserved for when there is strong growth and increasing wealth. Since people hoard tax cuts when they fear for their jobs and their retirement savings are plummeting, tax cuts do not inject spending into the economy. Cutting corporate taxes is entirely a question of competitiveness. Conservative approaches in this area have created a race to the bottom where countries (and states and provinces) continue to slash corporate taxes in order to maintain competitiveness. But in a global crisis I don’t see much headway being made by increasing companies’ competitiveness in one country through reduced taxes. The problem isn’t that money is being spent elsewhere; it’s that it’s not being spent at all.

Just like the 1930s, 1970s and 1990s we’re experiencing a crisis in a changed world economy and the problems are much the same: too much debt, a lack of confidence leading to reduced spending and growing problems with unemployment and a loss of wealth. The US response, and now that of more and more other governments, is to aggregate private debt into public debt in order to grow individual confidence and increase spending and credit. While this and the reduced interest rates will help I’m not sure it’s going to lead to growth – and I’m not sure that’s such a bad thing.

Much of the wealth that has been lost was made by either borrowing money that couldn’t be paid back, lending money that couldn’t afford to be lost or by trading in service industries that were growing through the benefits of the first two. If the US does the right thing and restricts the practices that led to the first two, they can’t spur growth through the third fallen pillar of wealth creation. It’s also too late for the US to retreat into a production economy – despite Obama’s musings about renegotiating trade policies. Japan tried stimulus through massive infrastructure projects and while it didn’t hurt, it didn’t help either. Certainly this is an avenue that must be explored but only because Canada and the US have underinvested in infrastructure for too long and can benefit from this spending in more than just economic terms. The caution here is that this spending should not be pursued as the be-all and end-all.

Ultimately the US is going to have to restructure their economy. They need to strengthen their manufacturing base in areas where they are still dominant (to be honest, I’m not sure what these are but I assume there are a few outside of the military). Their service economy is going to be their lifeblood but at best will only hang on for the next while until wealth creation begins again. For the US, wealth creation will only begin in earnest when the rest of the world exhales and starts spreading their money around. We are going to see the first truly modern international economy with no dominant player. Everyone’s success will depend on the livelihood of others so expect more and more free trade agreements. The US will have to eventually raise taxes and start paying down their debt which will only improve the cash flow of other nations, especially China.

Mostly the US and others are going to have to weather the storm by helping those hurt by this downturn. Yes, the New Deal approach though with a few caveats. Excessive spending on social programs comes with the inherent risk of developing dependence on them which in turns makes them permanent and an ongoing albatross on our budgets. Also, the political pressure to save everyone hurt in this situation is strong, so there’s also motivation to overdo it (I’m talking to you, Jack Layton). What are needed are temporary but broad relief programs to help people who don’t normally qualify for employment insurance, grants or other means of distribution. The distributions must also be tied to essentials so they’re spent and not saved.

There is no quick fix to this crisis. Changes are needed to our fundamental approaches to finance both privately and publicly. Regaining confidence will be slow and gradual but most importantly, the means of wealth creation must be watched to see if its based on sound principles of value for work, services and products and not on pyramid schemes of false debt and inflated markets. We need to focus less on growth and more on sustenance.

Economic Crisis Part I – How Did We Get Here?

This is the first of three posts that takes a look at the current global economic crisis:

Part I – this post looks at historical crises and the solutions employed and the trends that led to the current crisis;
Part II – looks at the solutions for the current crisis;
Part III – looks at the bailing out of big business and whether we’re going at this the right way.

We all know the old adage that we need to learn from history or be doomed to repeat it. With that in mind I’d like to look back at past economic downturns to understand what has or has not worked in terms of solutions. I’ll take this moment to make my obligatory qualification that I am not an economist and I invite any and all feedback on my observations and suggestions.

Historically I think there are three eras we can look at to help inform our analysis of the current: the Great Depression, the 1970s and 1980s, and the 1990s. Each somewhat runs into the other so it is a quick run-through of the past seventy years but each differed in their quality so I’m demarcating them into eras.

The Depression was caused by excessive debt and a panic-driven loss of confidence in the markets which led to a deflation spiral. Basically, US business and bank failures grew which caused panic. Lacking confidence, people tried to withdraw their money from banks and investments causing a market crash. This resulted in an acceleration of corporate and bank failures, a restriction of the US money supply and raised tariffs on imports. This in turn harmed foreign economies and the downturn turned global and prolonged.

Most correctly identify WWII as the catalyst for getting the world out of the depression though many economies had already started to recover by then. It is also widely acknowledged that the New Deal policies of the FDR administration had provided little stimulus during the depression, an argument which has been used to argue against Keynesian policies. Essentially though, what the war did was loosen credit and drive production as the war created a sudden demand market. The benefit to the US was that it didn’t enter the war and essentially became the provider of manufactured goods to the European nations, who bought these goods with debt. So there was a huge transfer of capital from Europe to the US effectively spurring the US economy into a boom. This levelled off after the US entered the war but they’d had a huge step up compared to others. After the war Europe was rebuilt under the Marshall Plan which returned much of the capital from the US to Europe but with strings attached, so that the US economy still prospered as the provider of goods and the collector of interest. But the cash infusion and the massive need for infrastructure rebuilding accelerated the recovery for the European nations and their ability to service their debt.

In the 1970s the US faced a difficult compendium of negative forces. LBJ had unwisely drove forward with the Great Society in the 1960s and invested in social programs while simultaneously funding the gaping economic maw of the Vietnam War. OPEC then raised the price of oil and the US was faced with stagflation (rising inflation and unemployment). What was worse was that this was largely their own problem as their WWII opponents – Japan and Germany – were thriving under their rebuilt and productive economies. This facilitated the conservative ascension and backlash against government spending (and the requisite high taxation). The US first implemented wage and price controls and trade restrictions to reduce inflation and increase domestic production. They also ended the Bretton Woods international monetary system which ended the US’ role as the world’s banker. In the end, a monetarist approach to stimulus was taken by raising interest rates in order to drive down inflation. After a sharp recession in the early 1980s the economy eventually recovered.

In the 1990s we saw a more common correction in markets and a downturn in the business cycle following a solid run of growth over the second half of the 1980s. The key lesson here was with our friend Bob Rae, who showed most convincingly that a government could not spend its way out of a recession. On the other hand Chrétien/Martin effectively rode the GST gift from Mulroney and slashed government spending (largely by cutting government waste and reducing payments to Provinces) in order to achieve balanced budgets. In the US, Clinton raised taxes on the wealthy and invested in programs for low-income groups and education. The US and Canadian economies saw their best run ever. Of note during this period were the collapse of the Asian market as a result of corruption, high debt and poor monetary policies and the subsequent lack of recovery derived from large government spending on infrastructure in Japan.

This brings us to our current situation and the first truly global downturn since the 1970s and perhaps on the same scale as the Great Depression. One key change of the 1980s was the move in the US towards finance-driven growth. This entailed a growth of mergers and acquisitions and wealth through stock markets and real estate rather than through manufacturing and production. As the global economy has become more integrated we now have modern, finance-driven economies in the Western nations and the more traditional, production-driven economies in developing economies such as India, China and Indonesia. It should be noted that economies in the Middle East, Russia, Africa and Canada are slight variations in that they are resource-driven economies and therefore beholden to the changes in commodities markets.

Part of the transition to finance-driven economies has been trends towards privatization, deregulation and incentives to borrow and invest in real estate and stock markets. This created a hugely profitable environment where money was made by practically giving it away and then packaging the debt into complicated investment packages that were spread around the world. While the housing and construction markets boomed most other industries were able to make moderate gains or hold steady – though it can be argued that the manufacturing industries in Western nations have been in consistent decline. On top of this the US added two expensive wars in Afghanistan and Iraq (that increased deficits and debt to astronomical levels), serious trade imbalances and a weakened dollar.

So when the sub-prime market collapsed under its own weight of unsubstantiated debt – that is, too much money loaned to people who couldn’t afford it – the entire financial system was quickly brought to its knees as the lack of credit literally froze financial activity. Companies – huge companies – went from reasonably healthy to dead within weeks. People have been laid off and have lost their homes by the millions. And like the Great Depression and the 1990s, a crisis in confidence has led to phenomenal drops in stock markets. The loss in personal wealth over the past year may send ripples into the future for decades.

It's Time for Liberals to Unite and Focus

My opinion of Bob Rae, with the breaking news of his imminent withdrawal from the leadership race, has just grown considerably. I've always thought of him as an admirable, honourable, and respectable politician and an asset to the Liberal Party, but have always had reservations about him as a potential leader due to his electability issues in Ontario - the last bastion of Liberal Party support in Canada. I felt the inability of Rae and Ignatieff to compromise in the last leadership race hurt the Liberal Party, so I am very glad to see a softening of his resolve, reluctant though it may be, this time around.

I was concerned from the outset that the leadership race was too long, too expensive and too much of a distraction to our other priorities. We knew from the beginning we had two strong and able candidates, and it was a matter of picking one and then moving forward. I support a one-member-one-vote system and have recommended a more inclusive and democratic process in the past, but given the extraordinary circumstances we find ourselves in, having the party pick a leader sooner than later is a good choice. I share with the many in our party the lamentation that democracy will have been sacrificed for expediency, but I think the situation is not as bad as it seems. Clearly Ignatieff has strong support in the party and is seen by many outside the party as a formidable threat to Harper and a strong leadership candidate for all Canadians. If the economy, prorogation, coalition, pending budget vote and looming election prospect weren't in play, then this would not be an acceptable turn of events; but in the end we have to be practical and I think moving forward with Ignatieff is an acceptable decision. I praise Bob Rae for recognizing this and putting the party ahead of his personal ambitions.

Despite the large amount of caucus and grassroots support for Ignatieff in the party, it is also true that he has been polarizing to a degree and there is a significant portion of the party who will not be happy with his ascension to the leadership. Iggy has his work cut out for him to show respect to Rae and his supporters and to unite the party under a common purpose. Likewise, non-supporters of Ignatieff have to look hard at themselves and decide, what is their purpose? Is it to make the Liberal Party strong and in turn help it lead Canada or to continue to fight our internal battles and weaken the party in pursuit of divergent agendas? Disagreements are fine, but there's a an immediate need to harness our diversity and use it as a strength rather than to continue to let it weaken us.

The Liberal Party, with its values of inclusiveness, compassion, economic discipline and progressiveness are too important to have them sacrificed to the partisan and destructive agenda of Stephen Harper and the Conservatives. Our common purpose is to strengthen our party through fundraising, policy generation and the articulation of a new vision for Canada. Through the combined effort of all we can achieve this and restore competent leadership for Canada - we are stronger together.