To think about bureaucracy, prosperity and the role of government in the latter for good or ill, there’s perhaps no better place than Brussels.
The Belgian capital is ground zero for the European project to integrate a potpourri of nations. While I was there at a recent conference, the scale of the integration attempt became apparent to me: it’s staggering.
At present, the European Union has 27 member countries, four candidate countries for membership and five who want to get to the candidate stage. Those who think Canada has a problem with a large public sector and its dampening effect on prosperity are correct. But multiply that problem by the organizational challenge of getting 27 nations together and talking, never mind agreeing and implementing.
That’s the European Union. Some things work‚ for example, open-skies and other free-trade initiatives within the union; so, too, the euro, insofar as it made business transactions and tourism easier.
But some things don’t work. The euro, again, insofar as it was to be supported by nations that live within their means.
The recent European blow-up over Greece was only the most obvious sign of a continent, or a non-Euro member nation like the United Kingdom, that created a large welfare state but on borrowed money and time. To exit the dilemma, it is here where Canada can perhaps be at least a partial example.
So what did we do right?
For starters, recall that deficits became an issue in Canada in the 1980s, in fact, as early as 1983. For readers who are old enough to remember and who lived in B.C. back then, 1983 was the year that, in British Columbia, then-Premier Bill Bennett made getting rid of red ink a priority. It took about a decade for the other provinces and Ottawa to catch up. But that was still much earlier than Europe or the U.S., which are only now figuring out how to balance the books. (The U.S. had a brief balanced-budget period in the late 1990s, but it didn’t last.)
Such relatively early attacks on debt mattered. Consider where Canada was vis-a-vis the rest of the world on net financial liabilities in 1995.
According to the OECD (Organization for Economic Co-operation and Development), in 1995, around the time the federal and provincial governments began to cut public spending significantly, Canada’s net debt-to-GDP ratio stood at almost 70%. In comparison, the United Kingdom’s was just over 26% and the Euro-area figure was 49.5%.
Fast-forward to more recent years: by 2008, Canada’s net debt to GDP declined to just 22.4%. Next year, even with the recent deficits, the projection for Canada’s net debt-to-GDP figure is 31%. But in 2001, the U.K.’s net debt to GDP will be 62% and the Euro area debt to GDP will be 63.6%. The U.S. figure will be 72.6%, about where Canada was 16 years previous. Some will be off the charts: Greece’s net debt-to- GDP ratio will hit 107%.
The direction matters.
An early Canadian attack on the permanent red ink culture allowed for balanced budgets and some debt payback in our country. It also provided room to reduce taxes individually and corporately. Europe and the United States are now under pressure to raise both.
There are problems on the Canadian horizon. Our two most populous provinces, Ontario and Quebec, are running significant deficits and will for some time. Due to transfer payments, more federal tax dollars from Western Canada will find their way to those bloated provincial budgets. The federal government is again running its own red-ink show because of its non-needed “stimulus” package.
Also, the federal Conservatives have spent too much every year they’ve been in power, show little courage on cutting corporate welfare, gave into White House pressure on bailing out General Motors and Chrysler and are protectionist on agriculture.
Still, because the Canadian public began to demand action as far back as the 1980s, and political entities such as the Reform party succeeded in convincing the traditional political class to begin acting in earnest in the early to mid-1990s (and federal Liberals, in power after 1993, did act), Canada can even afford some fiscal mistakes now, undesirable as they are.
Because Canada mostly corrected its fundamentals in the 1990s, the country is better positioned now on debt, taxes and thus on the potential for weathering continued worldwide economic weakness. And that matters. Just ask Europe, where such fundamentals mostly don’t exist. •
Mark Milke ([email protected]) is the editorial chairman of C2C Journal.ca, Canada’s online journal of ideas. He also works for the Fraser Institute. His column appears monthly in Business in Vancouver.