Jim Stanford
It gets worse: Economy continues decline under Harper government

| October 15, 2015
Photo: pmwebphotos/flickr

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As this marathon election campaign enters its final days, it is interesting to look back on the evolution of the economic debate during the past 11 weeks on the hustings. The Harper Conservatives once again tried to play the "economic card," claiming their policies are essential to Canada's future growth and prosperity. But this time, that argument did not resonate with voters. Indeed, opinion polls indicate no significant gap remaining in public perceptions of the economic credentials or credibility of the three major parties.

In the campaign's home stretch, the Conservatives are still trying to instil fear of change among voters (scare-mongering about deficits, tax hikes, and other terrible outcomes of any change in government). But the economy has been chronically weak under their leadership. And the differences between the three major parties' economic platforms are surprisingly modest. Dire threats that the whole economy will go down the tubes if Conservatives are not re-elected are generally not gaining traction. If anything, it would seem the best way to "protect the economy" (as the Conservative campaign implores) is to change the government!

Unifor's main contribution to the economic debate in this campaign was our detailed review of the economic performance of the Harper government, published just days before the writ was dropped. Our review, Rhetoric and Reality, co-authored by myself and Jordan Brennan, concluded that Canada's economy performed worse during Harper's tenure than under any previous prime minister since the end of the Second World War. The full report included a detailed statistical database, with complete sources and methodology provided. A shorter hand-out summarizes the main findings. Video presentations are also available: a short four-minute summary (that has received wide circulation on social media), and a full 23-minute lecture.

Our report received some decent attention during the campaign. Several newspaper columnists reported its main findings (including Lawrence Martin, Tom Walkom, Haroon Siddiqui, Don Cayo, David Olive, and most recently Danny Williams). All of the national opposition party leaders (including Mr. Trudeau, Mr. Mulcair, and Ms. May) cited our evidence in the televised leader debates. A couple of journalists delved more deeply into the methodology of the comparison -- as part of their efforts to "fact check" the various campaigns. The most recent of these efforts (through the CBC's "Spin Cycle" series) was both interesting and humorous. It confirmed our claims about Harper's historically weak job-creation and growth rates. But, in Mr. Harper's defence, the CBC pointed out that his economic record does surpass that of R.B. Bennett -- who served as PM as Canada slid into the Great Depression. That faint praise was surely more damaging than helpful to Mr. Harper, confirming our general conclusion that the Harper government's economic record is one of the worst in Canada's entire history.

Because our review surveyed a long span of history (back to 1946), we were constrained to use annual data, and hence our analysis could only extend as far as 2014. We were thus unable to integrate the most recent economic data (for 2015) into our report. In this regard, our conclusions overstated the relative performance of the Harper government, since they did not consider the most recent negative economic evidence.

For example, Statistics Canada confirmed mid-campaign that Canada's economy entered a shallow recession in the first half of 2015, and this damaged the Conservatives' economic credibility. More recent data has been mixed. Conservatives emphasize some positive results (like the strong growth in exports recorded in June and July, and corresponding monthly GDP growth those same two months), while the opposition parties stress other data (like a sharp decline in exports in August, lacklustre employment results, and the continued erosion of business confidence and investment spending). The September labour force report (the last major economic release before the election) confirmed that Canada's economy remains mired in something like a recession: full-time employment fell by over 60,000 positions, the unemployment rate rose to 7.1 percent, and private sector payrolls are still lower than 11 months earlier (going back to last October, when the current downturn started).

Some economists believe the recession is already over, while others (myself included) are more cautious given the negative outlook for key macro indicators (such as business capital spending, commodity prices, and employment). We won't know whether third-quarter GDP growth is positive (ending the official recession) or negative until Statistics Canada releases its next quarterly GDP report on December 1 -- long after the ballots have been counted. With Canadians' economic expectations so low after the recession, Conservatives try to claim "victory" by pointing to any economic data that is better than zero. In the remaining days of the campaign, progressives should keep focusing on the bigger Conservative failure: namely, that GDP growth and most other economic indicators have been so weak, for so long, whether the recession is officially over or not.

As a postscript to the full Unifor report, I have assembled 2015 data for most of the 16 indicators included in the initial analysis. This provides an interim view on the degree to which Harper's relative performance was affected by developments this year. After Friday's labour market report for September, we can now consider nine months of 2015 employment data. We have two quarters of GDP-related data for 2015 (including productivity, personal income, and household debt). With the mid-election publication of fiscal year-end budget numbers for 2014-15, we can update our federal debt ratio analysis with one more annual data point. Job quality data has been published by CIBC World Markets for the first three months of 2015. We can therefore provide mid-year updates for 14 of the 16 indicators contained in our initial report. (The two missing variables are income inequality, for which no data are available after 2012, and non-military program spending per capita, for which no meaningful mid-year analysis is feasible given the strongly seasonal pattern of federal revenues and outflows.)

The table below reports partial-year 2015 updates for each of those 14 variables. The table reports the original 2006-14 result (and ranking) for each indicator (as reported in our original paper), and then the comparable score obtained so far in 2015. (Growth rates for partial-year variables are all reported on an annualized basis.) The table then indicates whether this partial-year result is better or worse than the 2006-14 score (thus improving or worsening the Harper record), and whether or not the new data would affect the Harper government's ranking relative to other post-war prime ministers.

Not surprisingly, most of the indicators considered confirm that Canada's performance deteriorated significantly in 2015. In 11 of the 14 cases, the partial-year 2015 score was worse than the longer-run 2006-2014 result reported in the original study. Job creation has been even slower this year (just 0.9 percent, annualized) than over the 2006-2014 period (which already ranked as the slowest job-creation in the post-war era). Youth employment fell further this year, as did the employment rate and the index of job quality. Real GDP (in both absolute and per capita terms, reported separately in the report) declined this year. Two especially important components of GDP have also declined: business investment, down at a shocking 15 per cent annualized rate, and exports. Productivity also fell over the first half of the year. Real personal incomes per capita grew by an annualized 0.6 per cent over the first half of 2015 -- even slower than the sluggish 0.9 per cent average growth pace logged over the 2006-2014 period. Household debt grew by nearly 3 points of GDP over the first half of 2015 (on top of the 20-point increase experienced from 2006 through 2014). For each of these 11 indicators, therefore, the Harper economic record deteriorated over the first part of 2015.

In three cases, on the other hand, the partial-year 2015 scores were better than the longer-run averages recorded from 2006 through 2014. The unemployment rate has increased this year (rising from 6.7 per cent in December, to 7.1 per cent by September), but the average unemployment rate for the year-to-date (6.8 per cent) is still slightly lower than over the 2006-14 period. Labour force participation bounced back slightly this year (by one-fifth of a percentage point), offsetting some of the decline experienced from 2006 through 2014. And the small surplus recorded by the federal government for the 2014-15 year improved the Harper government's overall record on federal debt. (That year-end result also changed the sign of the Harper government's overall debt ratio record: the debt ratio as a share of GDP is now slightly lower than it was when the government took office in 2006, not slightly higher as indicated in our original report.)

In addition to data on the 16 specific indicators, our original Unifor report also calculated an overall ranking for each prime minister, calculated by averaging its ranking (from 1 for best, to 9 for worst) across all of the 16 indicators. It was on that basis that we concluded that the Harper government's overall economic record was worse than any other post-war prime minister. The Harper government's average ranking for the 2006-2014 period was 8.05, not even close to the second-worst government (the Mulroney Conservative government of 1984-1993).

In two cases, the negative results recorded over the first months of 2015 were sufficient to reduce the Harper government's relative standing among the other post-war prime ministers. The 1.6 per cent annualized decline in labour productivity over the first half of 2015 dragged down the average Harper growth rate for this indicator from 0.9 per cent to 0.8 per cent for the full 2006-15 period -- and this now ties the Harper government for worst productivity growth in the post-war era (with the Mulroney government). Meanwhile, the continuing increase in household debt (which grew by a total of 22.8 percentage points of GDP from 2006 through mid-2015) now gives the Harper government sole possession of last place in this ranking (whereas it originally shared that status with the Mulroney government). For none of the other indicators (including the three for which 2015 results were better than the average 2006-2014 performance) did the partial-year 2015 data affect the Harper government's ranking relative to other post-war prime ministers.

Including the two indicators for which the Harper government's ranking deteriorated (and assuming that its ranking did not change for inequality and non-military program spending: the two indicators for which no 2015 data was available), the government's average ranking now falls slightly to 8.13 (from 8.05).  As before, the Harper government ranks dead last among all post-war prime ministers -- but now, thanks to the economy's poor performance in 2015, it is by a somewhat larger margin. (Moreover, the Mulroney government's average ranking was boosted by both of the rank changes described above... so the gap between Harper and the next-worst government widened slightly at both ends!)

This mid-year update of our Unifor report confirms that the Harper government's abysmal ranking among post-war prime ministers was not solely the result of the 2008-09 recession. Remember, that recession (though unique in many respects) was just one of 11 recessions experienced by Canada since the end of the war -- and it was neither the longest nor the deepest of those recessions. Moreover, Canada's performance relative to other industrial economies through the recession and its aftermath was relatively poor (when adjusted, as appropriate, for differential population growth rates, Canada falls in the lower half of OECD countries according to job-creation and GDP growth since 2006). Now we see that Canada's economic performance is actually continuing to deteriorate: the further the 2008-09 recession recedes in our rear-view mirror, the worse does Canada's continuing record appear.

The conclusion of this empirical analysis is very clear. Not only has Canada's economy performed worse under Stephen Harper's leadership than under any other government in our post-war history, but things are getting worse, not better. The Conservatives' claim that their "plan" is working, and Canadians should just be patient and stay the course, has no statistical credibility. In short, there is more evidence than ever, that Canada's economy needs a fundamental change of course.

Jim Stanford is an economist with Unifor.

Photo: pmwebphotos/flickr

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