Why Ontario Can't Afford Harper

(A slightly edited version of this piece appeared in the Toronto Star last week.)


During the last few days, Stephen Harper has been trying to reassure Canadians that he is the steady pilot to see the nation through stormy economic seas.

Since Harper was sworn into office in February 2006, however, his government's economic policies have delivered a series of deadly blows to the Ontario economy.

Harper and his finance minister Jim Flaherty have bet the future of the economy on two major assumptions: first, that the United States will remain the great engine of economic demand on which Canada can depend; and second, that the petroleum sector will drive the national economy forward as have other staples sectors, such as fish, furs, timber and wheat, in the past. Theirs is a “back to the future” gamble on staples and raw materials, the strategy on which our economy was built in the distant past.

Harper has tried to sell the idea to Americans and Canadians that Canada is becoming an energy “superpower”, and that the rapid development of the oil sands will provide the U.S. with a secure source of energy in a troubled world.

The initial impact of the energy superpower strategy was to sharply drive up the value of the Canadian dollar, continuing an earlier trend, whose consequence was to severely undercut the competitiveness of Ontario's manufacturing. (Now as the U.S. economy languishes our dollar has fallen back below par from a high of $1.10.) As tens of thousands of jobs were lost in the auto industry and in other manufacturing industries, the Conservatives, chief among Flaherty airily dismissed the problems. The finance minister famously remarked six months ago that “if you’re going to make a new business investment in Canada, and you’re concerned about taxes, the last place you will go is the province of Ontario.”

Now the Americans have landed themselves in the most serious financial crisis since the Great Depression. It extends far beyond the bursting of the housing bubble. The world's major central banks have come to the rescue, pumping about four hundred billion dollars into the world's fast deflating credit system. And the Chinese and Japanese continue to hold trillions of dollars worth of American government paper, on which the return is close to zero. In Washington, extraordinary meetings have brought the top Democrats and Republicans in Congress together with the Secretary of the Treasury, the Chairman of the Federal Reserve and the head of the Securities and Exchange Commission. They are planning no less than the nationalization of the bad debts of the U.S. financial sector.

The bailouts may work more or less, if they finally get passed by the U.S. Congress. But the United States is submerged in so much debt that the recovery will be wrenching at best. In this crisis and in future crises, the tectonic plates are shifting. The role of the U.S. in the global system is being downsized. At issue is the very position the United States occupies in the global economy. The Americans, who produced fifty per cent of the world’s goods and services in 1945, produce only twenty per cent of global output today and that is predicted to fall to fifteen per cent over the next few years. The U.S. is being forced to occupy a more modest place in the world economy. As a consequence, the American people are going to be forced to pay, not only for the disastrous Iraq War, but the price tag for the bailouts and the global indebtedness of the United States.

All of this has vast implications for us. Who should Ontarians prefer to have at the helm during the coming period of economic transition?

Frankly, none of the leaders has said much that is cogent or reassuring about the global financial crisis and the future of the Canadian economy. But the Harper Conservatives are the ones who would likely do us the most damage.

The Conservatives are committed to contradictory goals: tax cuts; increased military spending; and the avoidance at all cost of a deficit. Having pursued the first two goals, Harper now finds himself on the knife edge of a deficit. In the coming economic slowdown, he will choose putting the knife to non-military spending to avoid a deficit, and under no circumstances will he resort to increasing the taxes of the rich.

For Ontario, a government whose instinct is to avoid planning and whose first preference is to reinforce the strength of the oil sector is contrary to our interests.

The Ontario manufacturing sector needs to be rethought, retooled and re-launched for the future. This amounts to much more than throwing money at particular firms that are in crisis. A strategy is necessary. That will mean bringing together all levels of government, the private sector, the unions, and the best planning brains in the country to figure out where our strengths lie and what portions of domestic and global markets we can carve out for our manufacturers.

It is no slur on Harper and his government to say that they don’t favour this sort of thing. Indeed, in principle they don’t believe in the enormous effort the U.S. government is now making to bail out the financial sector to staunch the wounds caused by de-regulation. Harper and Flaherty are firm believers in de-regulation.

Ontario’s economy, which rests heavily on manufacturing, is far too complex to be well served by a federal government that is bent on taking us back to the days when this country was a “hewer of wood and a drawer of water.”