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Arrow Introduction
Arrow Sessions
 

79th Annual Summer Conference, August 5–8, 2010

The Role of the State

Speakers: TOM FLANAGAN, Professor of Political Science at the University of Calgary and former Senior Communications Advisor, Conservative Party of Canada (bio); ALEX HIMELFARB, former Clerk of the Privy Council and Secretary to the Cabinet (bio); ARMINE YALNIZYAN, Senior Economist, Canadian Centre for Policy Alternatives (bio)

Moderator: TOBY FYFE, Editor-in-Chief, Canadian Government Executive

Summary by Leslie de Meulles, CIPA Youth Scholarship Recipient

Tom Flanagan: Lessons from recent history

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Flanagan argues that the last 30 years have been some of the most promising in recent history and that there are things that we can learn from the changes made in the 1970s as a result of the recession and “stagflation.”

According to Flanagan, Canada is doing so well because:

  1. 1. Our fiscal position was stronger than most other countries; Canada’s prosperity before the recession allowed us to weather it more easily.
  2. We learned from the experience of the 1970s and carried that lesson into the 80s and 90s.
  3. We decreased our federal debt and didn’t have the same mortgage problem as the US.

Flanagan also argues that Canada’s stimulus strategy was more successful for the following reasons:

  1. It was modest.
  2. It was short-term.
  3. It provided a clear exit strategy.
  4. No major structural reforms that would lose public support were implemented.
  5. Investors and consumers could see the return to a normal economic pattern in the near future.

Flanagan argues that, politically, this was a more “liberal” stimulus plan and credits this to the fact that we have a minority government.

In order to make sure that a similar recession does not happen in the future, Flanagan believes that we must get back to market fundamentals, and also to follow Adam Smith’s advice, namely that of prioritizing national defence (interpreted as protecting the public), providing an exact administration of justice (i.e., implementing the rules of conduct that are necessary for a free society) and providing for the public good.

Currently, Flanagan believes that privatizing large chunks of the economy will not benefit Canada: these barriers insulate business from competing with best practices around the world. We should get back to the market fundamentals that worked for us in the past. Government has to “get out of the way” to let business do its job.

In the end, Flanagan suggests that we go forward by following the success and lessons of the past.

Armine Yalnizyan: Insights as an Economist

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Yalnizyan states that the policy changes, made in reaction to the “stagflation” in the 1970s, is not the correct policy approach post-recession. The Harper Conservative government has been heavy on spending on military while preaching austerity and is attempting to shape the way we collect and share information in society. She believes that this trajectory will affect prosperity and democracy of Canada in a negative way.

Yalnizyan begins by describing the effects of the current recession, which saw the fastest and steepest contraction of the labour market. This came on the heels of 20 years of market-based solutions. The recasting of the purpose of the state left Canadians faced with the economic risks of joblessness as severe as they had been in the Second World War. Free-flowing cash kept the big three operators in operation and bought mortgages from the banks to keep them lending to the big Canadian banks. Modest changes in employment and stimulus spending kept the Canadian economy stable.

Yalnizyan asks: Did we learn anything from this experience?

First, she examines the triggers that led to the crisis, and argues that they still exist:

  1. Over-leveraging
  2. Inefficient regulation
  3. Shifting of risk

While Yalnizyan believes that the stated “real job” of the current government is to tackle the deficit, while the real question that we should be thinking about it what the role of the government ought to be and for whom the economy must be managed.

In considering the potential role of the government, there are three challenges on which Yalnizyan urges us to focus:

  1. Aging
  2. Climate change
  3. Rising inequality (gap between the rich and poor): unemployment is higher than ever, while the poor are becoming poorer. Meanwhile the rich are richer than ever.

Yalnizyan suggests that the government must protect society not just from external threats but from threats of internal chaos. While an economic recovery is underway, it does not look like this trajectory will lead to economic stability or growth. Economic growth, without widespread shared prosperity, is not real growth. Yalnizyan concludes by stating that real leadership must come from the federal government – the alpha dog that sets the tone for other policies at provincial and municipal levels.

Alex Himelfarb: “You shouldn’t waste a crisis”

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Himelfarb begins by paraphrasing Machiavelli, who said, “we should use the crisis as an opportunity for change”. We did less badly than everyone else and are coming out of the recession better than anyone else. So why should we change the way that we have done things so far?

Himelfarb first asks: why did Canada do better?

  1. Our banks were well-regulated and well-supervised and the regulatory agency did a good job in its role. We also maintained a prudential financial culture.
  2. Our financial institutions remained regulated.
  3. Our fiscal house was in order.
  4. We didn’t not buy into the tax cut and supply rhetoric, trying to cut taxes that then provide services we didn’t know how to pay for.

Himelfarb also asks: Why shouldn’t we celebrate?

  1. We exist in a hyper-competitive global economy.
  2. The locus of power in the global economy is shifting to Asia.
  3. We have enormous household and provincial debt.
  4. There is a widening productivity gap.
  5. Climate change is a real issue.
  6. In Canada, there is a deepening socioeconomic inequality.

Himelfarb argues that the purpose of government is more important than its size. Knowing the purpose of government comes from knowing a sense of what kind of country we want. The Canadian art has been to create wealth so that we can share it.

The erosion of the public space has contributed to the change in public conception of government and the role that it can play in society and has led us to look to the market for answers. We shouldn’t depend on the market because the market doesn’t have a moral centre.

Himelfarb believes that we will run the risk of allowing our social programs to erode because we won’t stand up for public services and the taxes to pay for them. To combat this, we need to have an honest discussion about taxes, information and the value of public service (elected and unelected) and a debate about what kind of government we want.