”œWell, welcome to the 1980s!” declared Pierre Trudeau the night of February 18, 1980. The very next month Canada got itself a brand new policy magazine to go with its not quite brand new government. Nine months is the human gestation peri- od. Nine months was the time the Liberal Party spent reincarnating itself before being called back to power after hapless Joe Clark did himself in as prime minister. Clark had dithered for six months before meeting Parliament and had then compensated with excessive decisiveness by proposing a fuel tax he hadn’t cleared with the opposition parties who controlled the fate of his minority government. Plus cÌ§a change? Twenty-five years later will another minority government come to grief over its own first or second budget? And are memories of how the country reacted to Finance Minister John Crosbie’s 18-cents-a-gallon ”” remember gallons? ”” ver- sion of short-term pain for long-term gain the main rea- son Paul Martin’s Kyoto Plan features exhortation rather than steeply higher fuel taxes?
But of course things do change. The Canada Policy Options entered in the late winter of 1980 was quite a dif- ferent place than the Canada of today. The Liberals’ return was widely regarded as but a bump in the right- ward shift then underway in the Anglo-American world. Britons had elected Margaret Thatcher May 4, 1979, just 18 days before Joe Clark sent Mr. Trudeau off to prepare for re-birth. And, of course, only 10 months after Trudeau’s famous welcome, Ronald Reagan was elected president of the United States.
The revolution Thatcher and Reagan kicked off is sup- posed to have made the world, even our Canadian corner of it, a much more conservative place. Did it? By some measures clearly not. Conservatives do come in different stripes, but for the market-loving Reagan-Thatcher conservatives who are supposed to have proliferated in the last quarter century the size of government is crucial. Yet according to the OECD, the year Policy Options was born total Canadian tax revenues were 30.9 percent of GDP. In 2002, the latest year for which data are available, they were 33.9 percent, having reached as high as 36.7 percent in 1998. Some revolution!
In other respects, however, things are vastly differ- ent. Trudeau’s National Energy Program, delivered just eight days before Ronald Reagan’s election, was a mas- sive intrusion of the federal government into the man- agement of the economy. (People talk about how the two countries are diverging now! Even Iran’s mullahs, who released their US hostages, gave Reagan a warmer welcome than the NEP.) The intervenors understood what they were doing: ”œThe decisions relate to energy,” wrote Energy Minister Marc Lalonde. ”œThey will impinge, however, on almost every sphere of Canadian activity, on the fortunes of every Canadian, and on the economic and social structure of the nation for years to come.” Ottawa’s logic was that the second oil crisis of the 1970s, the one sparked by the seizure of the US embassy in Tehran, had created another large windfall for Alberta and the mainly American oil companies that pumped Canada’s oil and gas and that this windfall should instead be shared by Canadians across the coun- try. (”œThis is a set of national decisions by the Government of Canada,” Lalonde’s document begins by declaring, as if to emphasize who was in charge.) That may have seemed sensible at the time but the bitterness the policy generated in Alberta ”” and which memories of it still fuel ”” guarantees that no federal government has dared do anything like it again.
Even at the time, however, Ottawa’s capacity for redistribution was tempered by budgetary consider- ations. The run-up in Alberta’s oil and gas wealth put such severe strains on the equalization formula that in 1982, even as the principle of equal- ization was being written into Mr. Trudeau’s new constitution, Alberta was being written out of the formula itself, a strategy whose repercussions are felt today, as Nova Scotia, Newfoundland and Labrador and (soon) Saskatchewan quarrel with Ottawa over the tax-back rate on their own oil and gas development.
A part from its ringing declaration of a pan-Canadian philosophy, the other notable thing about the NEP document (which I hold in my hands, its pages yellowed and curled) are the charts showing a steady rise in wellhead oil prices from 1980 to 1990, from $16.75 per barrel in August 1980 to $66.75 in July 1990 (which in today’s dollars would have been $90.78). We are much more humble now about our ability to forecast the price of oil. The direction, we have learned, is not uniformly skyward.
Other direct interventions in the economy regarded as normal in 1980 now seem equally fantastical. Yes, children, there was a time in this fair land when the federal government ran an airline and a railway. In his memoirs, the late Jack Pickersgill told of how the federal minister of transport used to involve himself in decisions about which aircraft would fly at which times on which routes. That seems lunatic now but was taken for granted in the early 1980s. What it takes for granted is the best measure of an age. But the Mulroney government sold off Air Canada and began the dismantling of Petro- Canada. Air Canada has done poorly since, though no worse than most airlines. Even the efficient Swiss bankrupted an airline. More people fly and at lower prices than ever before and now the taken-for-grant- ed solution to difficulties in the industry is more competition from new entrants. The minister of trans- port is not defunct (though some would say why not?) but is much less directly involved than before and presumably will intervene in a big way only if a major carrier literally stops flying.
In economic policy the headline change between 1980 and now was the Canada-US free trade agree- ment. Economists were proposing such a deal in the 1950s. In fact, they were proposing it since before we first had such a deal, in the 1850s. (In the second issue of Policy Options my McGill colleague Irving Brecher put the case for it admirably.) But in 1980 few people would have predicted that by the end of the decade we would have resolved to go for such a deal, nego- tiated it, endorsed it in a federal election, and landed our prime min- ister at an official signing ceremony. And yet now the FTA is essentially uncontroversial. It did, as Tom Kent says elsewhere in this issue, leave a number of problems unresolved ”” softwood lumber was revving up as a problem in 1980 and is still going full throttle 25 years later ”” but no one seriously proposes that the deal be undone. The most careful esti- mates, by Daniel Trefler of the University of Toronto, suggest the productivity gain in manufacturing was 6 percent. Asks Trefler, how many policy changes bring a permanent 6 percent increase in productivity?
In terms of how Canadians think about policy the biggest single change concerns govern- ment deficits. Ordinary Canadians may always have worried about them but in the 1970s and even into the 1980s most economists took such worries to be evidence of unsophisti- cation. They were wrong. In 1979- 80, the fiscal year that ended just as Policy Options was born, the federal deficit was $14.6 billion, which may not seem high by the standards of later years. On the other hand, in today’s dollars that was $40 billion and even then it represented 4.6 per- cent of GDP. In the next three years, however, it ballooned to 8.3 percent of GDP ”” the equivalent today of $100 billion ”” a record that in the dark years at the turn of the nineties Michael Wilson and Don Mazankowski would not come close to breaking. (Their worst was 5.6 percent.)
But in Ottawa in the early 1980s unreconstructed Keynesianism was still the order of the day. In April 1983, Marc Lalonde, by then minis- ter of Finance, issued a budget paper entitled ”œThe Federal Deficit in Per- spective.” The perspective should have induced vertigo ”” the deficit by then was above 7 percent of GDP ”” but Lalonde concluded that because of the slack in the economy ”œthere has been ample room for the federal government to finance the deficit without causing increases in interest rates. However…the deficit must be brought down to lower levels as soon as appropriate for the economy.” As soon as appropriate, unquote.
I remember going to conferences around that time at which perfectly reputable people argued that if you didn’t run big deficits, the double-digit inflation we were then experiencing would erode the real value of the debt. In fact, if you didn’t run big deficits your fiscal policy was contractionary because you were reducing your debts. At about the time Lalonde issued his ”œPerspective” document, two Queen’s University economists, Neil Bruce and the late Doug Purvis, published a famous paper for the soon-to-be-axed Ontario Economic Council called ”œSome Unpleasant Keynesian Arith- metic,” which showed what could happen over the long term if inflation rates fell and real interest rates exceeded the rate of economic growth. This and a later paper called ”œThe Medium Term Is the Message” helped turn opinion in the Canadian economics profession against a policy of permanent deficits.
Economists like to think they influence policy. The profes- sion’s growing disenchantment with a relaxed attitude to debt probably did play a minor role in persuading Jean Chrétien and his finance minis- ter, Paul Martin, to turn around the debt-to-GDP ratio. But I suspect most of the credit (or blame, depending on your politics) lies elsewhere. As comical in retrospect as the NEP’s price projections are, the charts that appeared year after year in Conservative budgets showing how the peak in the debt-to-GDP ratio was just two years off now seem just as ridiculous. The same chart appeared in three or four budgets in a row, with only the years on the X-axis changed, until even the Tories were too embarrassed to print it again. The unseemliness of a federal government that not only could not reduce the deficit but apparently could not keep it from exploding finally persuaded official Ottawa that drastic measures were called for. The peso crisis, raspberries from Moody’s, and the absence after the Tories’ 1993 electoral massacre of an effective opposition, all played their part.
As of this writing we have now had eight straight balanced federal budgets, and the political penalty for being the finance minister to end that streak rises with every passing year. In some ways this overwhelming victory of an apparently conservative fiscal principle is unfortunate. Even conservatives recognize there are some things only governments can do and that not all of these things should be financed out of current taxation. If Canada had an aircraft carrier, for instance, or ”œairlift capacity” of the sort that could have got emergency assistance to tsunami victims in days rather than weeks, you’d hope we would buy equipment that would last, not necessarily as long as our venerable Sea Kings have lasted, but for two or three decades at least. Borrowing to pay for these and even longer-lived investments wouldn’t be wrong.
There’s no good reason why this generation should be asked to finance investments that will benefit our children and grandchildren. But our post-1990s zero tolerance for deficits does not allow that style of budgeting. If the choice is between no deficits and deficits that spiral out of control, no deficits is obvi- ously the better policy. But perhaps Canadians and their politicians are now sophisticated enough about debts for a more flexible approach to public finance.
A part from our new-found funda- mentalism on deficits, however, the conservative revolution still has a long way to go in Canada. There is certainly no shortage of leftish pro- posals for what to do with the feder- al surplus. We who argue it should be returned to its rightful owners in the form of tax cuts do not seem to be getting very far. At the moment it appears the biggest single claim on the federal government’s fiscal wig- gle room will be a new national child care program that gives every evidence of being the social policy equivalent of the NEP: big, directed from Ottawa, and biased toward unionized, regulated, maybe even civil-service provision. People who had taken Thatcherism to heart would instead have the government provide parents with cash, maybe even vouchers, and then let them buy whatever kind of daycare they wanted for their kids, including no daycare at all, thus letting the cre- ative riot of de-centralized markets run rampant. ”œLet a thousand flow- ers bloom,” should be the guiding principle, not ”œIdentical institution- alized service for all, after an indefi- nite waiting period.” The same is true for our increasingly unrespon- sive education and health care sys- tems. Had there been a true conservative revolution in this country we already would have pri- vatized large parts of the public sec- tor. Instead we tiptoe around competition in health care. The Conservative Party was demonized in the last federal election for mere- ly suggesting that the single payer in our single-payer system should con- sider buying from many different suppliers.
The last 25 years clearly did bring a remarkable change in our views about debts, deficits and trade with the US. But in the 21st century as in the 20th, when the media dis- covers a new social problem the reac- tion of many Canadians, maybe even most, is that we need a new public program to deal with it. The rules of the political game as they are still played dictate that governments be seen to be concerned, and the way they normally display concern is to spend money and set up programs. In most cases, for most problems, government is still the first resort, not the last.
Has there been a conservative rev- olution in non-economic mat- ters? A single paragraph cannot do justice to the subject. Actually, on second thought, it can. The short and self-evident answer is ”œHardly.” A backlash does seem to be emerging on same-sex marriage. Public opinion polls suggest a majority of Canadians aren’t enthusiastic about it, though they would not use the notwithstanding clause (a post- 1980 innovation) to override judicial endorsements of it. But how far we’ve come in 25 years! Most opponents of gay marriage would countenance civil unions of one kind or another and grant employment benefits to same- sex spouses. In 1980 these were outré positions indeed. There is grumbling about but no credible prospect of de-liberalizing our divorce, abortion or capital punish- ment laws. Prostitutes are now ”œsex trade workers.” The F-word is com- monly heard on radio and television while all manner of filth appears on cable TV, with not even a pretense to artistic merit. Conservatives are divided on social policy, of course. Libertarians favour the greatest possi- ble freedom, though they often wish people wouldn’t exercise it so pub- licly or obnoxiously. Social conserva- tives would prefer to legislate more traditional values. But in the last 25 years we have all been swept away by a cultural (yes) tsunami.
All in all? It has been a long march but not very far rightward. Conservatives can still hope, however. And all Canadians can rest assured that, whatever awaits us, Policy Options will be there to chronicle it.