Harper seeking a sustainable Canada
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