Eight steps to salvage the nation

Dian Cohen October 18 1982

Eight steps to salvage the nation

Dian Cohen October 18 1982

Eight steps to salvage the nation


Dian Cohen

My career of commenting on economic matters began the same year Pierre Elliott Trudeau became prime minister. Almost since those early days I have been accused —mostly by Liberals—of being intemperate in my criticisms of Liberal economic policy. The outbursts stemmed from my perception that no one seemed to understand the totally destructive effects on the Canadian economy of fundamental Liberal economic policies. Perhaps a cursory review of some of the stunning achievements of the natural governing Liberal party will be enlightening:

• 1969-’70. Despite repeated warnings about mounting an attack on rampant 4 xk -per-cent inflation, the Liberal party waged war number 1, culminating in a glorious victory that resulted solely from the appreciation in the value of the Canadian dollar as Canadian governments and businesses borrowed abroad. The major side effects: high and rising unemployment for the whole decade of the 1970s and increasing noncompetitiveness of the entire Canadian manufacturing sector. By 1981 the deficit in manufactured goods trade amounted to some $20 billion.

• 1975-’78. Despite the glorious victory over inflation, war number 2 began with wage and price controls, brought in when wage settlements in the private sector were on their way down, although those in the public sector were on their way up, with more than 700,000 people out of work and 20 per cent of our industrial capacity shut down. The prime minister’s opinion was that too much money and too many Canadians were chasing too few goods. The rate of inflation when controls went on in 1975 was 14 per cent; in 1978, when they came off, it was nine per cent. The decline was illusory. As Liberal policies forced the Canadian dollar to drop from its artificially overvalued height of $1.04 (U.S.), prices increased yet again. Within two years of war number 2, inflation was well above 10 per cent, accompanied by what was now considered, at least in Liberal circles, to be a “normal’’full employment level of seven - percent - plus unemployment.

• Bookkeeping incompetence that has resulted in a $4-billion deficit in 1975 ballooning to a stated $19.5 billion in 1982. (In November, 1981, the depart-

Dian Cohen is a Montreal-based economics writer. Allan Fotheringham is on vacation.

ment of finance estimated the budgetary shortfall at $10.5 billion.) Street talk today is that the 1982-’83 deficit will top $25 billion, excluding the $8 billion that will be spent on unemployment insurance.

• The decline in the level of investor confidence; the Oct. 28, 1980, National Energy Program and its effects on the oil and gas industry; and the Nov. 12, 1981, budget, which has left investors in a state of limbo.

Lately, I have been stunned to discover that my own rage and feelings of impotence are nothing as compared to what other people are saying. In Calgary the other week, a businessman insisted that, if approached to fund an action group aimed at militant opposition to the present government, he would be happy to donate.

In Montreal the highly respected C.D. Howe Institute stated in its July Commentary that “Canada’s primary prob-

The economy has been mismanaged. It is time for draconian measures. To start, we should declare an emergency

lem has been mismanagement of its economic affairs since the early 1970s by its federal leadership. In a nongovernment organization, such poor performance would lead to a replacement of its leadership. ... In Canada, however, governments do not resign in such circumstances and the public probably will not be given the opportunity to reassess a mandate it gave 2!/2 years ago, in an environment that was perceived to be quite different than it is today, to a party whose policies simply have not worked.”

If so many Canadians are feeling this way, perhaps it is time for some drastic action. The parliamentary process, through which Canadians are supposed tobe informed as to the state of the nation and the goals for the future, has been rendered ineffective and totally irrelevant by the federal government. The policies of “a little bit here, a little change there” are insufficient to see Canada through to the 21st century.

If, indeed, we want to survive as a nation, we must rally together against them with a siege mentality. The alternative, down the road, is to become the

Mexico of the North, or part of the United States. Neither is inevitable —if we mobilize now.

There are several steps to take toward economic salvation. All we need to know is where we want to go. The following suggestions trace a path to a fairly efficient, competitive, humanitarian free enterprise system. Getting there, from the state we are in today, is going to take the balance of the decade. To start the voyage we should:

• Declare a national emergency.

• Phase out universal coverage for old age security, family allowances, government pensions, beginning with the top income brackets. We simply cannot afford it.

• Get the government out of business, especially the pension business. Let Ottawa fund it but not administer it. Federal administration has yielded a net return of about one per cent, while professional managers could make at least three per cent. As it is, premiums will have to rise from the present 3.6 per cent to seven or eight per cent within months. On the present basis money will run out before 1996.

• Reduce the size of the public sector. The private sector, which has a bottom line, is aiming at reducing its executive suite by 15 to 20 per cent. We should ask no less from the public sector.

• Phase out corporation taxes over several years. They now provide $6 billion to $8 billion a year. Over eight years the tax rollback will cost $1 billion a year. It will stimulate capital investment, without which we go nowhere.

• Sell government assets to raise cash. Air Canada, Petro-Canada and the new Crown corporation for Dome are starters. Together, even in a bad market, they should bring $10 billion.

• Tie unemployment insurance to a work-training program. Nothing is more wasted than the $8 billion being spent to keep people barely fed and very depressed.

• Start dealing with the real problems that have plagued the country for years—what kind of industries should be encouraged, what kind of schooling, what kind of tariffs, what kind of markets?

Sound draconian? It is. But what we have now is a dictatorship run solely for the benefit of the ruling party. We do not, even now, have a democratic government. There is no question that these are radical suggestions. But, at least, Canadians in general might prosper, and Canada might survive.