Harper seeking a sustainable Canada
By: Livio Di Matteo
February 13th, 2012
News headlines present what seem to be
unconnected stories regarding government initiatives and yet there is an
underlying strategy to what any government does. For example, recent
weeks have seen the term "sustainability" being applied to describe
federal government policies with respect to health transfers and
pensions.
At the same time, there have been references to Canada
forging new trade links with Asia and Europe. Coupled with all this is
the looming federal budget, which is expected to unveil substantial
budget cuts.
Linking all these items together is the agenda of
Canada's present federal government, which can best be understood as a
comprehensive strategy of national sustainability. That is, the pursuit
of a strategy that will make Canada economically sustainable for the
21st century.
To borrow a Prairie metaphor, the government's vision
is passing the farm on to our children via two policy pillars. First, is
restructuring the public finances and second, the pursuit of an
economic strategy designed to ensure long-term growth and opportunity by
taking our trade eggs out of one basket.
Securing the public finances requires balancing the
budget and making sure the national debt begins to decline as the
prospect of rising interest rates and debt service costs may squeeze
health and social programs.
The sustainability of government spending and
elimination of the deficit in the long term requires government spending
not rise faster than the resource base.
To this effect, federal health transfers will
eventually rise at the rate of GDP growth. As for government pensions,
there is ongoing discussion about reforms to Old Age Security to
increase the eligibility age and thereby also limit spending.
Eliminating the federal deficit primarily through expenditure reduction
rather than revenue increases can also be seen as a calculated strategy
of fiscal sustainability designed to keep our tax rates low for the
purposes of international competitiveness.
Given that one third of our GDP is rooted in the
export sector, Canada's economic viability also requires that we seek
opportunities to grow our trading relationships. The pursuit of trade
opportunities in Asia and Europe represents a long-term strategy to
diversify our trade portfolio and is a departure from our monogamous
historical trade patterns. First, we had Great Britain as our primary
trade partner and directed most of our exports there. Then, we
cultivated the United States as our trade partner, which at one point
absorbed nearly 80 per cent of our exports.
Reliance on one major market for our goods makes us
vulnerable to political and economic shocks. In the case of the U.S.,
while it represents a convenient and wealthy market for our wares,
recent years have seen the Americans become increasingly inward looking
and preoccupied with their border to the extent that trade with them has
become increasingly more difficult. The shift away from the American
market began during the world financial crisis and the Great Recession
of 2009. Between 2005 and 2010, the value of exports to the U.S. dropped
by 10 per cent and their share of our exports fell from 82 to 73 per
cent. Over the same period, exports to the United Kingdom and Europe
have grown as well as exports to other OECD countries, China and India.
The pursuit of China as a market for Canadian energy also marks a
departure from our previous continental approach to energy markets.
The federal government is following in the path of
previous governments in crafting an economic strategy to secure Canada's
sustainability as a nation. From 1867 to the Second World War, we were
dominated by the national policies of land settlement, tariff protection
and railway construction, which erected an east-west national space.
The period from the end of the Second World War to the 1980s saw the
pursuit of trade opportunities with the United States via agreements
such as the Auto Pact with increasing dominance of the North American
market leading to the 1988 Free Trade Agreement and NAFTA.
We are embarking on a 21st-century strategy of
economic diversification with the pursuit of trade and investment
opportunities with Asia and Europe. The continental economic vision of
guaranteed access to the U.S. market has been increasingly under siege
as a result of repeated lumber disputes, tighter border controls, and an
economically weaker United States that is more inclined towards
protectionism. In the face of these challenges to Canada's economic
future, the government response is a strategy to balance the books and
to make sure we will not be dependent on one international market for
our future economic welfare. Who can really argue with that?
Livio Di Matteo is professor of economics at Lakehead University.
Republished from the Winnipeg Free Press print edition February 13, 2012 A10
