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Dallying with the Economy

John Turner reveals why he resigned as Trudeau's finance minister

Mary Janigan October 9 2000
Cover

Dallying with the Economy

John Turner reveals why he resigned as Trudeau's finance minister

Mary Janigan October 9 2000

Dallying with the Economy

Cover

John Turner reveals why he resigned as Trudeau's finance minister

Mary Janigan

In the spring of 1984, during his final wistful months as prime minister, Pierre Trudeau had to choose between two strikingly different policies that he could champion. He could continue his quixotic campaign for peace in a Cold War world during his final appearance at the annual meeting of the Western world’s seven industrial powers, scheduled for June. Or he could urge his fellow leaders at the lavish London gathering to launch a global trading initiative to lower tariff and non-tariff barriers to secure Canadas future as a trading nation. As pre-summit briefings commenced, Trudeau listened carefully as deputy trade minister Sylvia Ostry warned that protectionism was rising dangerously in industrialized nations because Western manufacturers could not compete with the low prices of Third World imports. Ostry argued that Canada should find ways to counter that protectionist trend while helping its own hard-hit domestic sectors to adjust. The prime minister posed expert questions, nodding thoughtfully. Then, to the frustration of his civil servants and the consternation of his fellow leaders, he flew to the United Kingdom— and talked about disarmament.

It was always that way. It was not as if Trudeau did not understand economic theories. He did. It was not as though he did not care about the ever-deteriorating condition of the nation’s finances. He did. But he lacked the patience to wade through the conflicting economic theories, develop a coherent plan—and stick with it.

Instead, he dallied with one approach after another, reversing his own positions with breathtaking ease. One of those abrupt switches—the controversial decision to impose wage-and-price controls in October, 1975—provoked the resignation of his respected finance minister, John Turner. Breaking his 25-year silence on Trudeau’s most dramatic economic initiative, Turner told Macleans that he vehemendy objected to the imposition of controls—largely because the federal Liberals had romped to a majority government with the promise that they would not impose them. As well, Turner believed that the world was becoming too interconnected to invoke controls: Ottawa might be able to curb wages—but it could do litde about the price of imports. According to Turner, Trudeau was far more optimistic

about the possibility that controls might succeed. Shortly after the Liberals’ July, 1974, election victory, Trudeau began lobbying his finance minister to shift gears. Recalled Turner: “Trudeau said, We are going to put in wage-and-price controls.’ I said, ‘Not with me around. I campaigned against them.’ The unions trusted me. Business trusted me. No. We told people that we wouldn’t do it. And we were going to reverse that in three or four months after the election?” Today, Turner is still rueful about the private discussion with Trudeau that provoked his September, 1975, resignation. “The real problem was the issue of wage-and-price controls,” he told Macleans on the understanding that the inter-

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THE ECONOMY TOOK SECOND PLACE to national unity, which was dearer to his heart—‘he just wasn’t interested in economics’

‘Zap, you’re frozen’

-Trudeau, responding to Conservative leader Robert Stanfield’s unsuccessful election campaign promise ofwageand-price controls, June 29,1974

‘We have to swallow strong medicine.

We need to cool the fires of inflation.’

-Trudeau, announcing wageand-price controls, Oct. 13,1975

‘Mr. Trudeau would stand up for Canada in terms of our control over our own destiny.

1 don’t see that today.’

-Former Conservative Alberta premier Peter Lougheed,

June, 2000

view would not be published until after Trudeau’s death. “I should have been more explicit when I resigned as to why I resigned. But because of my loyalty to Mr.

Trudeau, I went quiedy.”

For Trudeau, the economy usually took second place to causes, such as national unity, that were dearer to his heart. Ostry’s push for freer trade was doomed: those domestic sectors that could not compete against cheaper imports—textiles, footwear and clothing—were largely located in Quebec. Why, in the final months of more than 15 years in power, would Tmdeau disrupt the Quebec economy and risk a resurgence of separatist strength? “He was highly intelligent and intellectual: he read all of his briefing documents, including the footnotes,” reflected Ostry. “He just wasn’t interested in economics. He listened to everything and understood it.

But, in the end, he had one priority: national unity.”

The nation paid a steep price for Trudeau’s distracted approach to its long-term economic health.

It took much of the 1990s to eliminate the breathtaking deficits that first appeared during his tenure. Federal cash transfers to the provinces were slashed—so programs in health, medical services and social assistance were pared to the bone. With public

debt charges still consuming With Turner: the finance minister rejected wage-and-price controls more than 25 cents out of every revenue dollar, Ottawa’s spending power has been eroded. As a direct consequence, it has lost clout in provincial capitals. Ironically, the strong central government Trudeau fought so valiantly to maintain was undermined by his handling of the economy.

In 1968, when he swept triumphantly to power, the economy was vibrant—and the traditional economic remedies easily worked. Small shortfalls were the 1968-1969 revenues were $12 billion and the

norm:

deficit was $670 million. The economy was booming,

generating the cash that Ottawa required to fund its ever-expanding social safety net. By 1984, the economic picture was far, far bleaker. The nation was painfully emerging from the worst downturn since the 1930s. Ottawa’s annual shortfall was more than half the size of its revenues: in 1983-1984, the deficit was a staggering $33 billion on revenues of $64 billion. Inflation was relatively high, 5.3 per cent in January, 1984, and unemployment soaring at 11.2 per cent. The nation was reeling.

It was not all Trudeaus fault. It was his ill luck that, during most of his tenure, the global economy was in upheaval. By the early 1970s, the first traces of globalization were apparent: the economies of individual nations were becoming so interwoven that governments could not insulate their citizenry from outside forces. In 1973 and 1979, world oil prices shot up, fuelling inflation and imposing crippling costs on oildependent industries and consumers.

Worse, as Trudeau eventually discovered, in this grave new world the old economic remedies didn’t work. In the 1950s and 1960s, governments could spend freely when times were tough to curb unemployment—and pare spending when times were good to control inflation. By the mid-1970s, however, Canada was struggling with the new phenomenon of stagflation: high inflation and high unemployment. Economists and politicians groped for solutions. Turner recalled that Trudeau was so desperate for answers that he could be captivated by any persuasive theorist, including the Canadian-born Harvard University economist John Kenneth Galbraith. “Galbraith used to sneak into 24 Sussex,” Turner said. “I would hear about it—and I would tell Galbraith, ‘Look, don’t feed him this crap.’ Galbraith was pretty left of centre. We would hear these theories the next week.” Turner paused, contemplating Trudeau’s record. “The economy,” he added sadly, “was not his main thing.”

Eventually, the Paris-based Organization for Economic Co-operation and Development concluded that nations should tackle inflation first. Trudeau rejected that approach: he was unwilling to curb inflation by slashing spending as long as unemployment remained high. He did w not want to risk further national distress, especially in Que! bee. And he was reluctant to pay the price ol unpopularity ; ‘I at the polls.

—& Instead, he kept looking for a made-in-Canada solution. From 1975 to 1984, in his bid to “wrestle inflation to the ground,” he tried everything from wage-and-price controls to gimmicks such as the Six & Five campaign of 1982-1984, which created ceilings of six per cent and then five per cent for wage and price rises. Inflation ebbed, but it was only licked in the early 1990s—after industrialized nations, in a concerted attack, curbed their spending and raised interest rates. The price of that onslaught was a deep recession. “How can you be an inflation fighter and be in favour of social justice?” mused Trudeau’s former principal secretary Tom Axworthy. “We tried a billion different ways to deal with inflation without necessarily putting

millions of people out of work. In the end, there had to be a recession to get out of it. It’s really too bad that there isn’t another way.”

Without firm economic leadership, the crises were endless. Trudeau would occasionally fix his enormous powers of concentration on a problem—and opt for a course. But he rarely followed through. In 1978, after a stern lecture from German chancellor Helmut Schmidt, Trudeau abruptly announced immediate spending cuts of $2 billion out of program spending of $43 billion. There was a flurry of paperwork. But program spending kept increasing—and the deficits kept accumulating.

Ironically, Trudeau had a frugal personality. “He would say, ‘Where are you going to find the money for that?’ ” recalled former cabinet minister David Smith. “In many ways, he was very conservative.” But that fiscal rectitude could never withstand other priorities. In 1972, anxious to shore up support for his minority government with the New Democratic Party, he increased spending by 50 per cent over two years: from $18.8 billion to $28.2 billion.

Worse, Trudeau never could accept the central fact of today’s economic life: Canada is unable to isolate itself from world forces. He probably should not have tried to protect inefficient industries. He should have worked with global leaders to find a solution to inflation. “It’s easy to say in retrospect,” says Axworthy, “but it would have been

THE PM FACED A GFIAVE NEW economic world of high inflation and high unemployment where the old remedies did not work

better to spend a lot more time using organizations such as the Group of Seven rather than looking for a domestic solution, which got less relevant with each succeeding year. We were on the wrong side of history.”

In the end, it was the economy that wrestled Pierre Trudeau to the ground. But he bequeathed the solutions to his successors. In 1982, exasperated by problems within the economic union, he appointed a royal commission chaired by former Liberal finance minister Donald Macdonald. That influential report, released in 1985, called for free trade with the United States, greater reliance on market mechanisms—and rapid adjustment to global change.

So, almost inadvertently, Trudeau did begin the search for a better way. “In effect, when Tmdeau appointed me, he launched a new way of thinking about the Canadian economy,” Macdonald recalled years later. “True, that way was despite his instincts. But we had to get out into the world.” Ironically, Pierre Trudeau’s finest economic legacy was to begin the dismantlement of his own policies. E3