Martin's management: a flat-out disaster

What if Paul Martin became prime minister and was suddenly so afflicted with pangs of conscience that his first speech from the throne revealed his true record — and a plan to redeem it?

Why would his conscience be troubling him? Well, simply because the whole legend of Martin's record — that he designed and delivered an amazing economic recovery in Canada while ridding the nation of chronic deficits — is largely myth.

First, his enormous cuts to health and education didn't actually eliminate the deficit. What did was the Bank of Canada's decision to dramatically lower interest rates, unleashing a burst of economic growth that produced nearly $100 billion in surpluses from 1997 to 2003.

Second, despite the hype about saving the economy, Canada's performance in the 1990s was the worst of any decade in the 20th century except the 1930s. By virtually every economic measure of importance — GDP growth, employment, new investment, productivity, standard of living, wages and salaries — the 1990s were a flat-out disaster. And it was ordinary Canadians who suffered.

The simple fact is that Paul Martin's fiscal and economic policies didn't work — and they're still not working. The productivity gap with the U.S. is growing, not shrinking. GDP growth is still anemic, wages and salaries have increased only marginally, job growth is weak and we still have the second-highest number of low-wage jobs among all industrialized countries. We still attract less foreign investment per capita than the U.S., and most of it is used to buy up existing assets.

And so, what would Paul Martin say in his first throne speech if he had the courage to acknowledge that his policies had failed? What would he say if he decided to shed his CEO persona and suddenly become a nation-builder? Canadians might hope for something like the following:

“Ladies and gentlemen, I would now like to turn to the economy and the government's tools for building it: monetary and fiscal policy, and something we used to call our industrial policy. In an interview with Time magazine in 2002, I stated: 'We don't need managing. We need building.' I meant what I said.

“As finance minister, I spent most of my time managing the country as if it were a company. I saw my job as that of the chief executive officer. I looked at the country and its deficit as if it were a conglomerate that had to be downsized. Indeed, this was my experience as the owner of Canada Steamship Lines. It was a leveraged buy-out. I had a huge debt to pay off and not enough cash flow. I sold off two large pieces of the company.

“I did much the same thing with Canada. I made huge cuts — 50 to 60 per cent — to the many departments that were long associated with nation-building. I slashed the budgets of the departments of agriculture, fisheries, transportation, natural resources, regional and industrial development and the environment. As I saw it, these were non-essential to the core business of facilitating foreign trade.

“But I say to you today that the landscape looks different now and we need to reassess how we grow the Canadian economy. Let's examine where we are and where we need to be.

“In the 1990s, we strongly believed that trade would be such a powerful driver of the economy that we effectively threw out the old tools of industrial development, tools that had built the domestic economy. In putting our faith in trade, we ended up abandoning the regions to their own devices — and ignoring the domestic economy.

“I am not saying that trade is not important — far from it. But contrary to conventional wisdom, less than 20 per cent of our real GDP is accounted for by trade. And while our policies were designed to facilitate trade, they ended up privileging a relatively small number of Canadian businesses. Just four per cent of all exporting establishments accounted for 82 per cent of the total value of merchandise exports. The 50 largest exporting enterprises accounted for almost half of all merchandise exports. It would be fair to ask: 'What policies do we have in place to facilitate that part of the private sector — 80 per cent of Canadian enterprises — that doesn't sell anything outside Canada?'

“The world can change quickly in the era of globalization and we have seen such changes in just the past two years. The U.S. economy is precarious, with its balance-of-payments deficit at the unsustainable level of five per cent. The U.S. budget deficit this year will be a staggering $500 billion. The U.S. dollar is falling and ours is rising, posing a real threat to our export market. If Washington raises interest rates to finance its deficit, it could dampen their already precarious growth — and further undermine our exports.

“My government will continue to pursue an aggressive trade strategy. But, in parallel, we will take measures to ensure that our domestic economy is strengthened. That means we must explore ways to make Canada a high-wage economy. It is those high wages that drive spending here at home.

“We must reinvest in an industrial strategy that targets the technologies of the future — particularly leading-edge renewable energy and energy conservation sectors, but also value-added strategies for our natural resources.

“And we must put billions into renewing our national infrastructure: the east-west transportation system, our deteriorating urban infrastructure and renewed public support for our universities and cultural industries, where investment dollars have their highest impact on job creation.

“In addition, we need a monetary policy and fiscal policy that encourage this kind of growth. That means endorsing the now widely accepted monetary view that inflation levels of six per cent or less are not harmful to the economy, but in fact promote healthy economic growth. The same is true of fiscal policy: rather than use most of our future budget surpluses to pay down the debt, we need to renew social spending.

“This is important not simply because Canadians say they want improved services, but because it is one of the best ways to provide a stronger base for the domestic economy: Nurses, teachers, scientists and others spend their money on Main Street. And that is where it will increasingly be needed as this country faces precarious and unpredictable markets for our exports. A national child-care program would allow tens of thousands of Canadians to enter the workforce just as Canada is starting to face a labour shortage.

“That, ladies and gentlemen, is the plan of my government. It is what I meant when I said last year that 'the next decade is going to be the most exciting decade in which you or I have lived'.”

Will Paul Martin ever make such a speech? It would represent an enormous shift from his dedication to economic rationalism and minimal government — the ideology that drove Martin's policies for nine years — to a commitment to nation-building.

There is no question about where the vast majority of Canadians want the country to go. But can their voices ever be heard above those of Bay Street, who are demanding more of the same from their chosen prince?

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