Wednesday, 22 July 2009

O Canada, we stand in awe of thee

Have you noticed that if you learn something new you’re almost bound to come across it again within twenty-four hours? For instance, you find out what the word ‘promiscuity’ means – not having had any need for the word in your personal experience – and the next day you’ll hear some serially adulterous TV evangelist denouncing it.

Canada is a country that I’ve liked ever since I first went there. In my experience, and I’ve been there twice in February, it has pleasantly mild winters, although I’m assured that my experience isn’t universally representative. It has spectacular landscapes, plenty of cheerful warm-hearted people – as long as you keep away from officialdom – and some extraordinary writers, such as Robertson Davies and Margaret Atwood (though I have to say I retain little of the whole string of Davies’s novels that I’ve read, whereas Atwood’s The Handmaid’s Tale was so powerful that it has left an indelible mark on me).

What I didn’t know until ten days ago is that Canada is also a model of economic good management. It is the benchmark for what can be done to cut national debt. This is an increasingly strident concern amongst those in Britain whose political sympathies are somewhere in the range from near George Bush Senior – you know, the one who was at least recognisably in possession of a brain – to somewhere to the right of Genghis Khan. The argument is that Labour – try to think of the word being pronounced with a sneer – has plunged Britain into desperate debt with no prospect of ever getting out. With debt at the unprecedented level of 60% of GDP and rising, Britain is facing the prospect of losing its AAA credit rating, which is apparently only marginally less catastrophic than the prospect of a German invasion in 1940. Everything that makes life precious to us will be lost if that rating goes.

Interestingly, Japan has a debt level of 160% of GDP and a credit rating of AAA. Italy is on 100% and is triple A rated. China, a nation not generally regarded as a minor economic player, has a credit rating below triple A. Brazil has a credit rating in the Bs but is the emerging economic giant of South America.

Somehow, I can’t help feeling that even if we lost our triple A rating, the sea really wouldn’t fall into the sky and the trees wouldn’t hang with fishes. And in any case we’re a long way behind Italy or Japan in our indebtedness, and they still enjoy the top rating.

All the same, I’m sure it would be a good thing if we could start to pay down debt in the relatively near future. So I was fascinated to discover that Canada took a huge bite out of its debt in the 1990s. It’s the kind of achievement that inclines me to forgive a people that takes a noble game like hockey and uses its name for some kind of pugilistic encounter on ice skates. Above all, it justifies finding out more. So naturally I consulted my good friend the journalist Mark Reynolds ( who, among his many other shining virtues, shows admirable forbearance for someone labouring under the burden of being Canadian.

Mark confirmed it. Canada really did reduce its debt significantly under Jean Chrétien, the Liberal Prime Minister from 1993 to 2003.

And here comes the coincidence. Within twenty-four hours of having learned all this, I heard it being discussed on the radio. It seems that the British Conservative Party is promoting the Canadian experience as a model of what it intends to do once in power over here. To examine what this meant, the BBC had got hold of Mary Clancy, one time Liberal MP for Halifax, Nova Scotia.

Apparently the cuts made by the Chrétien government were deep indeed. She estimated that overall they amounted to 40% of public expenditure. Mark, for his part, suggested that the Federal government made many cuts indirectly, by reducing the budgets of the Provinces, leaving it to Provincial governments to make the tough decisions such as cutting healthcare.

According to Mary Clancy, that wasn’t enough to protect the government. It was returned in 1997 but with a reduced majority and, in particular, the Liberals lost every one of the eleven seats they had held in Nova Scotia – including her own.

There is no equivalent in England of the Canadian Provinces. If the Conservatives want to take on sacred cows, and healthcare is as revered over here as in Canada, they’re going to have to do it themselves. And the price in terms of loss of electoral momentum will be significant. Will they do it? Maybe. But it’s a lot easier to be bold from the safety of opposition than when in government.

What’s more, there’s a huge difference between today and 1997: today the world as a whole is in recession. Back in 1997, a still growing world economy could be expected to help take the strain, allowing Canada to absorb through growth some of the unemployment that the cuts would create. Conservative cuts in Britain would send unemployment sky-rocketing, increase social security spending, reduce the tax take. All of this would significantly limit the debt-reducing effect targeted in the first place. It would also further depress demand, as unemployment increased, deepening and extending the recession.

Am I alone in seeing this? Of course not. David Cameron, leader of the Conservative Party, may be many things but he’s no fool (to misquote Groucho Marx, I have nothing but admiration for Cameron, and not much of that). He understands all this and shares with his Party a passionate commitment to the one thing it’s really good at: winning elections. In the last century, the Conservative Party was in power alone for 51 years and in coalition with another party for a further 15.

Will Cameron push his luck? Will he really set out to be as tough as the Canadians to get debt down to pre-recession levels? Or will he say ‘what the hell – we’re nothing like as indebted as the Japanese or the Italians, we’re not even as indebted as the US – let’s live with it and get re-elected’?

Let’s see.


Victor Chisholm said...

Part of the 1990s Canadian Liberal strategy to cut the debt was to plan very conservative "balanced" budgets and tax-plans that, in fact, delivered surpluses year after year, which then helped pay down the debt (and maybe slush some other funds?). That was possible in the years of growth, but would be harder nowadays.

David Beeson said...

Excellent point - there is talk over here too of cutting deficits as well as debt but, as you say, that's not that easy in a recession.

In fact, it might contribute to make the recession a great deal longer: that was the effect of deflationary policies pursued after 1929.

Awoogamuffin said...

Isn't it sad that you didn't have much of a use for the word promiscuity?

David Beeson said...

Depends on how much you think it matters to have a word for it.

Toronto condos said...

Always good to hear kind words about Canada. However, as far as I know, in 1980's Margaret Thatcher's policies in Britain were also very successful, so they could serve as an inspiration. Nevertheless, it sure is pleasant for Canadian politicians to know that they set the pattern for crisis solving in Britain. Best wishes, Elli.