The 21st prime minister of Canada, Paul Martin, ascends to the highest office in the land amidst a remarkable and enviable conjuncture of circumstances, some, but not all, of his own making. Martin’s political position will seem unassailable, at least until well after the next election, giving him an unprecedented degree of freedom to put his personal stamp on Canadian politics and policy. What Martin makes of this potential, however, depends on the choices he makes.
As Martin takes office, Canada’s economic and fiscal situation is relatively healthy, certainly in comparison to our southern neighbour. He will benefit from the presence of new Liberal premiers in Ontario and Quebec, creating the potential for a renewed practice of federalism. He will quickly send the nation to the polls in an election in which anything less than a sweeping Martin majority would be a stunning surprise.
A leader with a dream, armed with such formidable political assets, could remake this country. The question is, what is Martin’s dream? He enjoys an unparalleled capacity to lead. But where is he going to take us?
Will he seek to “manage” the country, solving problems and resolving irritants, building on his reputation as a prudent fiscal manager, acting like Canada’s CEO? This approach would certainly win plaudits from the business community, which so strongly endorsed the deficit-cutting tone of his tenure as finance minister, and which worries about any effort by Ottawa to play a more active social and economic role. But this tack would ultimately represent a huge lost opportunity.
Martin can and should think much bigger. I believe he is personally committed to leaving behind something more substantial from his tenure as prime minister than just balanced books. After all, any government can balance its books, if it backs away from enough of its programs and activities. The bigger challenge is for government to balance its books while meeting its responsibility to ensure the social and economic security of its citizenry. I hope that he uses the opportunity presented by his leadership to help construct a more balanced, fairer, and more sustainable Canada. There is much that he could do, if he seizes this opportunity to use his office, and his current popularity, to lead change, as opposed to simply managing the status quo. He could be a nation-builder, not just a CEO.
Martin presents a very complex political figure. His background in business, and his record as finance minister, indicate a predisposition toward the private sector, market forces, and free trade. On the other hand, he speaks passionately, and I believe sincerely, about the need for a stronger and more inclusive social vision, both within Canada and internationally.
Which direction he takes as PM will depend in part on the relative ability of competing constituencies within Canada to enunciate and advocate their respective visions and demands. Martin is too seasoned a politician to ignore these political winds. But ultimately, the direction of government in the Martin era will also depend on Martin’s personal convictions and decisions. The choices will be his own.
Martin has a long list of policy files to address as he takes his new office. Here are some of the key ones which, in my view, would allow Martin to leave behind a stronger, fairer Canada. First, Canada-US relations. This is a tricky, dangerous time for Canada’s relationship with our southern neighbour, a relationship which, like it or not, is vitally important to our collective well-being. The Bush administration has demonstrated a tendency to reckless unilateralism in many areas: military issues, foreign affairs, and environmental policy, to name just the obvious ones. For the mouse sleeping next to this particular elephant, it would be very easy to get squashed. Martin has already made a priority of addressing and improving Canada-US relations. Let’s hope he does it in a way that enhances our sovereignty and our capacity to do things the Canadian way, rather than compromising them.
Martin must start by rejecting the vision that has been recently enunciated by Canada’s business elites to form a “grand bargain” or partnership with the Americans, one that would trade harmonization in certain important policy areas (like security, immigration and refugee policy, and perhaps military and commercial policy) in return for easier access to the US market for Canadian exports. This “big idea,” as it is sometimes termed, is a non-starter on both sides of the border. The Americans aren’t particularly interested: they will never fully open their border, even for Canadians, without being able to directly regulate entry controls around the broader continental perimeter. The risks, including the political risks, of a security breach for US leaders are far too great for them to take this chance. The vast majority of Canadians, too, are offended by the notion that our ability to determine our own approaches to these issues— many of which, like our welcoming attitude to immigrants and refugees, are crucial to our sense of nationhood— should be sacrificed in the interests of easier trade. If anything, Canadians have gone in the opposite direction in recent years, coming to better appreciate the value of our sovereignty as we chose different paths from the US on issues ranging from Iraq to gun control to Kyoto to health care.
It would be a major mistake for Martin to underestimate the power of Canadians’ underlying pride in their independence and sovereignty. Instead of throwing our national eggs into a US basket that presently looks somewhat tattered, a more complex but promising direction would be to address our bilateral issues (like chronic traffic congestion at the border) incrementally and pragmatically, on the basis of equality and mutual respect. This will involve both trust-building and hard bargaining. Martin can remember that the Americans have as much at stake in our bilateral economic relationship as we do: $300 billion worth of US goods and services are sold in Canada each year, and American companies own over $200 billion in direct investment here. I actually believe the Americans would appreciate a pragmatic, incremental approach to resolving our outstanding issues, over any politically elusive and explosive “grand bargain.”
Canadians will certainly reward Martin if he shows that he can manage our relationship with our neighbour in a way that protects our economic interests while respecting our sovereignty. Canadians will also reward him if he places our international relations in a broader, humanitarian, and global context. For this, he will have to put his government’s money where its mouth is. Canada still vastly underperforms our stated goal of dedicating 0.7 percent of GDP to international aid and development, and the responsibility for this failure is partly Martin’s (since international aid was one of the hardest-hit portfolios during the era of Martin’s budget-cutting). Canadians strongly support initiatives where we can put our own stamp on efforts to alleviate suffering in the world, like the proposal to provide low-cost AIDS drugs to Africa. Martin will need to follow through, despite predictable opposition from business vested interests, to make sure we fulfill our potential to make a bigger difference in the world than our size alone would suggest.
Second, Canada’s economic structure. Paul Martin obviously understands the importance of a strong economic foundation for the overall fiscal and social development prospects of the nation. Once we dig beneath the government’s shallow, self-congratulatory bumph about Canada’s restored economic “fundamentals,” however, it turns out that we have much to worry about in this regard. In particular, during this decade Canada has experienced a powerful and worrisome reversion in its economic and industrial structure. This is a long-term economic challenge that will require the Martin government to go far beyond the current infatuation with broad “fundamentals,” like low inflation and balanced budgets. Rather, it must learn to once again play a more active role in supporting and stimulating the specific, strategic industries which will be crucial to Canada’s longterm trade and productivity success.
The once-booming high-tech sector has been shrinking rapidly since the bursting of the dot.com bubble in 2000. At the same time, unfortunately, the handful of higher-value export industries in which Canada once demonstrated global success have also entered painful decline. Industries like automotive products, aerospace, and telecommunications equipment have seen orders evaporate, plants close, and trade surpluses disappear.
What’s left to backstop Canada’s performance in global markets? Regrettably, our most dynamic export industry in recent years has been the energy sector. Energy exports have more than doubled since 1999, even as our exports of high-value manufactured goods have declined. We are now the largest single supplier of oil to the US, and the US now purchases over half of all the primary energy produced in Canada. Huge new investments in export-oriented megaprojects, (like Arctic gas, Alberta oil sands, and east coast oil, will cement this new-old role for Canada’s economy as a continental energy storehouse.
Martin’s successor as finance minister, John Manley, has boasted of Canada becoming a “northern industrial tiger.” His colleague, Industry Minister Allan Rock, launched a broad “innovation agenda” to stimulate Canadian technological capacities. In practice, however, we are quickly becoming a northern Saudi Arabia, not a northern tiger. And broad, diffuse technology-support policies are not going to make enough of a difference in the strategic, intensely competitive high-value sectors where we need to defend and expand Canada’s historically modest industrial success. Canada will need to resuscitate its ability to actively promote investment, employment, and exports in key industries, especially high-value manufacturing, to stem the tide of our structural regression and avoid ending up once again as a nation of hewers of wood and drawers of water. This will require a clear reversal of the recent hands-off policy stance which has dominated Ottawa since the mid-1990s. This stance— according to which government should limit its actions to constructing a competitive business environment, rather than trying to support particular industries, no matter how valuable those industries may be— itself reflected fiscal constraints more than genuine ideological commitment. It has clearly failed, as amply evidenced by the widespread decline in our key high-value export industries, and our corresponding failure to grow successful exports in new high-value industries.
Martin’s experience in business, and his family’s roots in Windsor, may allow him to be more pragmatic, and less puritanical, in his approach to industrial development issues. An important case study will be provided by Ottawa’s response to the crisis in Canada’s auto sector, which until recently was Canada’s biggest export earner, but which will soon become a net importer in the absence of policies to quickly restore Canada’s lustre as a pre-eminent site for auto investment. Until recently, both the federal and Ontario governments stood on the sidelines as the industry declined, repeating tired platitudes about how government shouldn’t “pick winners.” The new Ontario government, however, is committed to more actively support the industry. Martin has indicated that he, too, appreciates that Canada must do whatever is necessary to protect its share of the auto industry, and its valuable fiscal and employment spinoffs. The new Martin cabinet will need to move quickly with fiscal and other measures to stem the industry’s decline. And those actions should be a template for corresponding parallel actions— concrete, hands-on measures— to nurture Canadian excellence in other high-value, global industries, including aerospace, electronics and biotech. For too long, Ottawa’s economic mandarins have pretended that free trade with the US is the only industrial development policy we need. The evidence is mounting, however, that free trade alone is producing profound and costly regression in our industrial status; we need other tools, trade rules and incentives to ensure that we get the industries, the exports and the jobs we need to support a high standard of living in a globalized economy. Martin can surely bring a more practical appreciation of the realities of the business world to his new job. Let’s hope his economic policies learn from that experience.
The third thing to consider is the fiscal balance. Balancing Ottawa’s books was Mr. Martin’s greatest achievement as finance minister, and has been the crucial source of his political credibility since then. However, the federal budget has now been balanced for six years. Canadians might be forgiven, therefore, for asking “What have you done for me lately?” There was never really any question that the federal government would eliminate its deficit. Obviously, the huge and chronic deficits of the early 1990s were unsustainable by any measure, and they resulted mostly from the devastating combination of economic stagnation and very high interest rates that were characteristic of the era. As global growth picked up later in the 1990s, and interest rates fell, especially in Canada, every major industrialized economy managed to balance its books. So there’s nothing especially unique or admirable about Canada’s achievement in this regard. True, we did it faster and more painfully than most others, with a greater, and in my view unnecessary, reliance on socially destructive cuts in public programs, like our unemployment insurance system. I’m not sure that’s anything to boast about.
Today, too, Canada is unique: the only G7 economy to run a surplus. I’m not sure that is worth celebrating, either. Ottawa is piling up billions of dollars in surplus tax revenues every year, helped along by a budget-making process that is more manipulative and politicized than any in recent Canadian history, with predictably phony economic estimates and fishy accounting. Meanwhile, millions of Canadians cannot trust the water that comes out of their taps, so badly tattered has our public infrastructure become. We clearly need to rethink our priorities. Our single-minded focus on avoiding deficits, no matter what the costs or the context, and the habit of finance ministers manipulating budgets so they can announce “unexpectedly large” surpluses, now interfere with our collective need to use the mechanisms and resources of government to provide essential services and public security.
Martin balanced the books. Now let’s see his government restore a broader and more meaningful sense of “balance” to Canada’s fiscal affairs. Let’s see him establish a fiscal regime that is truly sustainable, not just because it avoids deficits, but because it meets the needs of Canadians for a balanced and secure life.
Since Ottawa eliminated its deficit in 1998, federal tax revenues have been cut by two full percentage points as a share of our GDP. Federal program spending, however, has not increased at all as a share of GDP. That doesn’t sound especially “balanced” to me, especially since most of the burden in balancing the budget in the first place was borne by program spending cutbacks. It also blatantly contradicts the Liberals’ repeated promise to spend 50 percent of future surpluses on social programs. Tax cuts have captured the lion’s share of the fiscal room that has opened up since the deficit dragon was slain. Again, this wins plaudits for Ottawa from the business lobbyists and high-income constituencies who pocket the majority of those tax savings. But cutting taxes is no way to build a nation.
Martin has indicated, in his speech to the Montreal Board of Trade and other venues, that further tax cuts will be a priority of his administration. At the same time, he has also spoken of the need for strategic investments in crucial social priorities, such as early childhood education, aboriginal poverty, and advanced education. He can’t have it both ways; he can’t continue to please both audiences. Ottawa’s fiscal situation is not nearly as tight as Finance Canada officials pretend. But it is certainly tighter than it has been in recent years, thanks mostly to Martin’s own expensive tax cuts implemented beginning with his 2000 budget. If Martin is serious about investing in the social and “human capital” infrastructure that will be crucial to our prosperity in coming years, he needs to quickly abandon the notion of further tax cuts.
The results of the recent Ontario election should give the new PM cause for sober second thought. The former Conservative government yet again focused its platform on further tax cuts, despite Ontarians’ worries about the crumbling status of their schools, their health care system and their water supply. The opposition Liberals promised a freeze on taxes, and to invest all additional funds in badly-needed social reinvestments. The Tories were trounced and the Liberals swept to victory. The whole election was a referendum on tax cuts, and the citizens of Canada’s most populous province indicated resoundingly that cuts are not the priority. Martin should heed this lesson clearly, lest he suffer a similar fate somewhere down the road.
And fourth, does Paul Martin have a national project, what the French call a projet de société? Love him or hate him, Paul Martin proved his mettle as a great politician by the manner in which he handled the deficit reduction exercise in the mid-1990s. He set a national goal. He warned that sacrifices loomed; there was no free lunch. He famously promised to meet his targets, “come hell or high water.” He deployed the resources of government in a focused manner toward attaining that target. In so doing, he mobilized Canadians behind him in that effort and won their approval when the goal was accomplished far ahead of his own schedule. I don’t agree with the manner in which the deficit was eliminated: it placed far too much of the burden on those Canadians who could least afford to carry it. But like many Canadians, I respect and admire the leadership skills that Martin demonstrated in conducting that campaign.
Can’t we do the same thing today: set a national goal, and collectively steel ourselves to attain it? And can’t Martin demonstrate the same political and leadership capacities in determinedly helping us reach those goals? Canada is a great country. Yet there are so many repugnant and inexcusable features of our society that could be resolved by a focused national effort of the sort that vanquished the deficit: child poverty, environmental degradation, aboriginal squalor, homelessness. Martin enters his new post with an incredible inventory of popularity and credibility. If he set his, and our, minds to it, he could lead the country in truly conquering one or more of these collective challenges. Martin speaks often about his concerns over these and other problems facing our country. But when it comes to making their solution a priority of his government, and allocating the necessary resources and leadership that would be required to make it happen (including leadership to overcome the predictable complaints from vested business interests), we’re not yet sure if Mr. Martin is willing.
We were the first G7 country to balance the budget. Why couldn’t we be the first G7 economy to eliminate homelessness? It’s a daunting challenge, to be sure. It would require attention, focus and resources. But clearly it could be done. As prime minister, Martin will enjoy a virtually unparalleled opportunity to do some truly great things. I hope that he makes the most of this opportunity and leaves behind a Canada that is genuinely and markedly better— not just a Canada with balanced budgets and strong economic “fundamentals.” There’s nothing more fundamental than the quality of life experienced by the masses of Canadians. Let’s see if Martin’s choices improve that quality of life, or not.
