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Six Stewards of Canada's Economy — History by The

Six Stewards of Canada's Economy — History by The

SIX STEWARDS OF ’S ECONOMY — HISTORY BY THE NUMBERS FAVOURS MULRONEY AND CHRÉTIEN, WHILE TRUDEAU LEAVES A LEGACY OF DEFICITS AND DEBT

Michael Hart and Bill Dymond

Assessing the economic legacy of the six full-term prime ministers of the last half-century is easier done than said. In economic rankings, statistics are more than empirical data, they are objective evidence. Numbers talk. The authors focus on three main criteria: Canada’s performance as a trading nation during each PM’s tenure; the fiscal state of the country at the beginning and end of his time in office; and the “misery index” of , unemployment, exchange rates and economic growth. They conclude that , left an economic mess by , had the most challenging economic context of any of the six major prime ministers of the last 50 years, and did the most to improve it. Jean Chrétien also receives high marks for having the good sense to leave and the GST in place, and for having the political courage to rid Canada of its crushing legacy of deficits. Lester Pearson and Louis St-Laurent guided the country through boom times, while ’s vision did not translate into a good economic performance. Trudeau receives the worst economic scorecard from the authors, both former senior economic officials and authorities on international trade.

Évaluer l’héritage économique de six premiers ministres n’est pas une mince affaire. Dans un classement, les statistiques ne sont pas que de simples données empiriques, elles deviennent de véritables preuves objectives; les chiffres parlent. Sur la base du bilan commercial du Canada pendant le mandat de chaque ministre ; de l’état des finances du pays au début et à la fin de chacun de leur mandat ; et de « l’indice de misère », combinant inflation, chômage, taux de change et croissance, Michael Hart et Bill Dymond ont accepté de relever ce défi. D’après ces critères, c’est Brian Mulroney qui a hérité de la conjoncture économique la plus difficile, vu l’état désastreux dans lequel Pierre Elliott Trudeau avait laissé les finances publiques, et c’est lui qui a le plus accompli pour améliorer les choses. Jean Chrétien a également reçu d’excellentes notes pour avoir eu la sagesse de maintenir le libre-échange et la TPS, et le courage politique d’en finir avec nos déficits endémiques. Lester B. Pearson et Louis Saint-Laurent ont gouverné en des temps de forte expansion, tandis que John Diefenbaker a échoué à traduire sa vision en une performance économique digne de ce nom. C’est enfin à Pierre Elliott Trudeau que revient la palme du pire bilan économique.

ow well did Canada’s most recent major prime and Pearson, and consider it too early to assess Chrétien. ministers do as stewards of Canada’s economic The man in the street would also be wrong. H welfare? What criteria would be appropriate for More than for other prime ministerial legacies, their making such an assessment? The man in the street’s gut feel- economic ones rely on objective criteria. As a relatively ings, fed by popular media perceptions, might be to praise open economy, for example, Canada’s performance as a Trudeau, bury Mulroney, forget St-Laurent, Diefenbaker, trading nation can provide useful insight into a govern-

30 OPTIONS POLITIQUES JUIN-JUILLET 2003 Six stewards of Canada’s economy ment’s economic stewardship. Equally, anced budgets, low inflation, and had begun to enjoy a high and rising the fiscal state of the country at the politically acceptable levels of cyclical standard of living and an increasing beginning and conclusion of a prime unemployment. The overall impact range of government services. For the minister’s period in office can be an was a steady improvement in Canada’s first time in Canadian history, the important indicator. Then there is the economic prospects, a reality well cap- growth in the economy — output rose misery index of inflation and unem- tured by the Final Report of the Royal 64 percent between 1944 and 1957 — ployment levels, as well as such data as Commission on Canada’s Economic had come largely from domestic exchange rates, economic growth, and Prospects in 1958. demand. New investment had risen interest rates. This article focuses on 249 percent while government capital the first three criteria as the major ot everyone agreed that the St- spending during this period had risen pointers to the stewardship of the gov- N Laurent Liberals delivered the by 776 percent. Domestic demand out- ernments of the six most recent full- best possible policy to pursue Canada’s paced foreign demand to the point that term prime ministers, and throws in a economic development. national- exports steadily declined as a percent- few of the other factors where they are ists disliked the individualism of clas- age of GNP. The economy had become helpful in fixing praise or blame. sical and the more diversified and capable of provid- When the young Princess that flowed from Canada’s geography. ing with a growing array of Elizabeth ascended to the throne in They preferred the ties of history, goods and services and with high- 1952, and at the time of her corona- Empire, and sentiment to those of paying jobs. Canada had become more tion in June 1953, her Canadian geography, technology, and economic urbanized and the quality of life, at dominion was firmly under the man- interests. Economic nationalists simi- least materially, had improved with it. agement of the Liberal Party, with larly deplored the US connection be- Canadians could look with satisfaction Louis St-Laurent serving as its manag- cause it tied Canada into the world’s at a government that had delivered the ing director, having taken over the pre-eminent capitalist economy and prosperity it had promised. Looking reins of power upon the retirement of undermined Canada’s ability to act back from the perspective of 2003, we Mackenzie King in 1948. His hold on independently. What they wanted was can appreciate even more the benefits power had been confirmed in the gen- a Canada that could pursue its own Canadians had derived from the mana- eral election of 1949 and would be destiny, often defined as anything but gerial competence of St-Laurent and extended for a further mandate in that of the . his colleagues, setting a standard that 1953. This final phase of the long These concerns, however, engaged his successors would find difficult to Liberal hegemony was by 1953 in its only a few. By the middle of the match, let alone surpass. ninteenth year, dating back to 1935. decade, most Canadians had many But political success requires more St-Laurent’s core team consisted of good reasons to be satisfied. Canadians than managerial competence. By the veterans like himself, at Finance, Jimmy Gardiner at Agriculture, and the minister of every- CANADA: EXPORTS OF GOODS AND SERVICES thing, C.D. Howe, at Trade and 50 Commerce and Defence Production. It 45 had been enriched by the addition of Lester Pearson at External Affairs. 40

Together, they offered sound, smooth, 35 predictable, and pragmatic gover- nance, carefully matching their own 30 preferences to those of the popular 25

will, broadly considered. of GDP Percent 20 On the trade front, St-Laurent and his ministers and officials expended 15 considerable effort to find the most 10 realistic and workable trade regime, one that opened markets for Canadian 5 agriculture and resource producers but 0 1960 1966 1972 1950 1962 1964 1954 1956 1958 1968 1970 1978 1988 1990 2000 1948 1974 1976 1980 1982 1984 1986 1992 1994 1996 1998 2002 that protected the vulnerable 1952 Canadian manufacturing sector. Their St-Laurent Diefenbaker Pearson Trudeau (Clark) Mulroney Chrétien approach to fiscal policy was similarly Total To USA To Others cautious and pragmatic and brought Source: Statistics Canada, Canada’s International Balance of Payments and unspectacular but positive results: bal- National Income and Expenditure Accounts.

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mid-1950s there seemed sufficient dis- either Diefenbaker’s anglophilia capital and a precipitous reduction in content to sweep the Grits from office N nor his anti-Americanism, for Canada’s reserve position. and install a minority Tory govern- example, translated into constructive On other economic factors, ment under their new leader, John policies. He had never been shy about Diefenbaker’s record is equally trouble- Diefenbaker, bringing to an end a gov- his dislike of the Americans as a some. While inflation remained low, ernment that had served Canada well nation. Once in office, however, there unemployment increased, aggregate but had become somewhat tired and was continued rhetoric but little seri- growth rates stagnated and the burden of arrogant in the process. In 22 years, ous effort to reduce Canadian depend- government spending increased, as did the Liberals had at one time or anoth- ence on the US market or to reduce US taxes. On the trade front, Diefenbaker er offended a lot of groups, from investment in Canada. Diefenbaker’s exacerbated a number of Canada-US files wheat farmers to anglophiles. Could ministers used the occasion of the first (e.g., the extraterritorial application of US Diefenbaker and his ministers respond meeting of the Joint Canada-US law), missed opportunities at both the to their complaints and do better? Ministerial Committee to express their Dillon Round of GATT negotiations and As it turned out, they could not. desire to try to diversify Canadian in the lead up to the Kennedy Round, In fact, they did worse. Neither trade. In return they received little and complicated trade relations with Diefenbaker’s 1956 successful leader- more than a sarcastic rejoinder from Britain as he huffed and puffed about ship campaign nor his winning elec- US Secretary of State John Foster Britain’s on-again, off-again efforts to toral campaign in 1957 offered much Dulles that that was Canada’s busi- join the Common Market. Only his pio- insight into either his domestic or ness. Dulles also reminded them that neering wheat sales to China cast a bright foreign economic policy. light during his tenure. Diefenbaker, though clearly a Diefenbaker himself left a strong During his nearly six years man of deep convictions, was in office, Diefenbaker never over- not much given to introspec- mark on issues of central policy and came his suspicion of the senior tion about policy issues. His it is his legacy that must be bureaucracy. He remained con- nearly six years in office con- considered. From a trade and vinced that External Affairs was firmed that he merely reacted economic policy perspective, that full of ’Pearsonalities’ and that to events and was not prone other senior officials were all to long-term planning or the legacy was largely a matter of friends of the leader of the oppo- pursuit of clear objectives. bluster, indecision, and deterioration. sition. Ironically, by 1963, with Many of his decisions were the return of the Grits, there coloured by personality clashes and the US was a cash customer and pro- were Liberal partisans who shared some reflected his strong sense of para- vided Canadians with the goods they of Diefenbaker’s suspicions that senior noia. For those charged with prepar- wanted. As Dulles and his colleagues officials could not be trusted to carry out ing policy advice for his government learned, the Diefenbaker govern- the new government’s program. Like and implementing its decisions, ment’s bark was worse than its bite. Diefenbaker before them, the newly Diefenbaker’s leadership turned out Indeed, it rarely bit and when it did, it elected Grits failed to appreciate the to be a trying experience. was more likely to hurt itself as much extent to which good policy must Some of his ministers, on the as its intended victim. respond to the realities within which other hand, left a strong and positive Monetary policy provides a com- Canada operated, including the realities legacy, despite increasing problems pelling example. Since 1950 Canada of adapting to the policy preferences of within the Cabinet. had technically been in violation of other countries. Officials could be as and , for example, ably the IMF by maintaining a floating nationalistic as Diefenbaker or Walter executed their mandates at Finance rather than a fixed exchange rate. Gordon, Pearson’s mentor and first and Trade and Commerce. Indeed, Canada’s excuse was its proximity to finance minister, but it was a na- Hees is fondly remembered by the the United States and its heavy depen- tionalism tempered by a clear apprecia- Trade Commissioner Service as one dence on the US market. A floating tion of the limits of idealism. Pearson’s of its most enthusiastic and support- rate, however, enables a government five years in office continued the roller- ive ministers. Ultimately, however, to fiddle with the exchange rate, and coaster ride of trying to find the balance Diefenbaker himself left a strong when the Conservatives began actively between the professionals’ preferences mark on issues of central policy and to try to lower the Canadian exchange for pragmatic solutions to specific prob- it is his legacy that must be consid- rate in 1961, markets did not react lems and their critics’ zeal for more ide- ered. From a trade and economic pol- favourably. Reducing the value of the alistic and nationalistic approaches. icy perspective, that legacy was dollar might have helped to boost ex- Diefenbaker had demonstrated largely a matter of bluster, indeci- port sales, but it also had more delete- that getting under the skin of the sion, and deterioration. rious effects, including a flight of Americans on virtually every file was a

32 OPTIONS POLITIQUES JUIN-JUILLET 2003 Six stewards of Canada’s economy sure way of frustrating the attainment of the resource sector as world-class built on a weak foundation. By the of Canadian objectives. Pearson was in supplying forest and prod- time Trudeau took his walk in the snow more selective, reflecting the outlook ucts to markets in the United States in February 1984, both Canada’s fiscal of most Canadians. In 1963 Canadians and, increasingly, Europe and Japan. position and international payments were generally still well disposed Other manufacturing industries had positions were in a parlous state. toward the United States and particu- seen some erosion in their protec- Trudeau and his ministers had demon- larly its energetic young president, tion, but not enough to induce those strated a continuing inclination to John F. Kennedy. The industries to look beyond the domes- ignore the warning signs, concentrat- would change that and make anti- tic market. With the exception of the ing instead on politically persuasive Americanism a creed with which more grains sector, agriculture did not fare short-term nostrums. Its focus on con- and more Canadians could identify. as well, and was becoming more and stitutional, social, distributional, and The war introduced a cynicism about more dependent on the domestic similar issues had come at the expense the exercise of power that corroded market. Trade relations with the of sound economic stewardship. attitudes along a much wider range of United States were better than previ- In April 1968, Trudeau inherited issues than those related to defence ously, but there were storm clouds on an economy at the top of the business and security, and gave economic the horizon. New opportunities in cycle. The buoyant times evident dur- a respectability that it more distant markets were beginning ing the Pearson years continued for might not have attained otherwise. to be realized even as the interdepen- nearly five more years, and then came dence of the Canadian and US to a crashing halt, ending a quarter earson’s cabinet was divided economies deepened. century of sustained expansion and P among pragmatists and national- When Pearson handed the reins of ushering in a decade of uncertainty. ists, with the prime minister siding power to his successor, Pierre Elliott Canada was not alone in experiencing with one group on some issues and Trudeau, he had presided over five economic turmoil, suggesting that with the other group on others. Walter years of solid growth, averaging over 6 international forces played a large role. Gordon anchored the more nationalis- percent per year, a rate that would Domestic factors, however, were also tic and interventionist wing, while allow the economy to double in size in important, including the impact of and his more cautious less than 12 years. He had improved policy choices that tried to shield and pragmatic Cabinet colleagues both the country’s fiscal and interna- Canadians from international pressures believed the problems Gordon and his tional payments positions, he had and avoid desirable adjustments. supporters had identified were not as introduced a range of popular new From the late 1940s until the early severe nor the solutions as necessary as he claimed. In this The Pearson years from 1963 to 1968 proved reasonably approach, they had the full successful. Certainly they were more fruitful than the support of the professionals in previous half decade. The Canada-US Auto Pact provided the public service. Gordon never learned the critical role the basis for the development of a large, productive the public service plays both in secondary manufacturing sector in , demonstrating developing and implementing the critical role of foreign direct investment and open policy. Sharp, the former man- markets to Canada’s economic prosperity. darin, did know and used this knowledge to his advantage. programs, and he had made Canadians 1970s, Canadian governments had On the trade policy front, the feel good about themselves during the pursued countercyclical budgeting in years from 1963 to 1968 proved centennial celebrations in 1967. He an effort to stimulate economic reasonably successful. Certainly they had also burdened the country with growth and full employment while were more fruitful than the previous new programs and policies, however, maintaining budgetary discipline. By half decade. The Canada-US Auto that would steadily increase costs and the 1960s, however, governments Pact provided the basis for the devel- expectations and drive the country began to believe that they could do opment of a large, productive sec- toward bankruptcy. The combined more and decided they could also ondary manufacturing sector in impact of international and domestic repair the economy’s failings and Ontario, demonstrating the critical forces were also fuelling inflation and redistribute income to create a more role of foreign direct investment and increasing levels of both structural and just society. To these ends, the Pearson open markets to Canada’s economic frictional unemployment. government had pursued an activist prosperity. The Kennedy Round of As Trudeau would learn over the social agenda, convinced that in a GATT negotiations further consoli- course of his nearly 16 years in office, richer Canada, governments could do dated and strengthened the position the strengths of Pearson’s record were more to help poorer Canadians. The

POLICY OPTIONS 33 JUNE-JULY 2003 Michael Hart and Bill Dymond

Trudeau government decided to go uing high levels of immigration. stayed in that range for the rest of the even further, trying to shape Canada’s Accommodating these additions added decade, only marginally above popula- economic development along politi- to inflationary pressures. Finally, there tion growth. Unemployment steadily cally more acceptable lines. Trudeau developed a high level of resistance on climbed from 5.3 percent in 1974 to 6.9 thus presided over a government often the part of both government and indus- percent in 1975 and reached 11 percent eager to expand the role of the state. try to adapt and adjust to new econom- in 1982, while inflation averaged over 10 Some seven departments, 14 ministries ic forces, particularly in the weaker percent from 1974 through 1982. Some of state, and 114 new agencies, boards, manufacturing sectors, adding to the of the inflation was the result of interna- and commissions were created during attraction of the crank solutions offered tional forces; more was due to purely the Trudeau years to advance regional by nationalists and interventionists. domestic factors, although other coun- development, science and technology, Over the course of the 1970s, tries were experiencing similar problems urban affairs, the environment, inter- Trudeau’s more interventionist minis- as a result of similar policy choices. national development, and more. ters and advisors discovered more and The profligacy of the 1970s also Throughout government, officials more market failures requiring govern- sent budgetary deficits spiralling out of learned the rewards of policy and pro- ment action. Rather than being control. Between 1968 and 1985, the gram activism. deterred by clear market signals of federal government doubled its spend- looming economic problems, they ing, in real dollars, on each citizen, rudeau’s efforts were complicated maintained that the boom of the post- reaching some $4,750 in current dol- T by the federal structure of the gov- war years was the direct product of lars in 1985. Concurrently, per capita ernment and large regional disparities. demand and, with tax revenues steadily declined, ensur- The smaller provinces did not com- patience, their efforts would be reward- ing a growing deficit crunch. Andrew mand the same resources as the larger ed. Those who held that the boom Coyne calculates that: “net federal debt ones, thus adding to the conviction years had been grounded in the fiscal in fiscal 1968…was about $18 billion, that the federal government should — caution of the King and St-Laurent or 26 percent of gross domestic prod- and could — tackle both personal and years were dismissed — not always log- uct; by [Trudeau’s] final year in office, it regional disadvantage. Additionally, ically — as heartless, or were accused of had ballooned to $206 billion — at 46 more than any other member of the trying to turn Canada into a miniature percent of GDP, nearly twice as large OECD, Canada faced the fastest grow- replica of the United States. relative to the economy…In 1984-85, ing labour force, spurred not only by The results, however, were not total spending exceeded revenues by the baby boom bulge, but also by the encouraging. GDP growth fell from 7.7 more than 50 percent. The deficit that impact of rising participation by percent in 1973, to 4.4 percent the fol- year, at $38.5 billion, was nearly equal women in the labour force and contin- lowing year, to 2.6 percent in 1975 and to 9 percent of GDP…Every dollar of the $300 billion added to the debt dur- ing the Tory years was interest on the UNEMPLOYMENT RATE IN CANADA debt the Liberals had left behind.” By the end of the 1970s, inflation 14 appeared to be abating, only to heat up again after the second oil shock in 1979, 12 leading to more experiments with tax cuts, but without any clear indication of 10 a government with a sure sense of direc- tion or priorities. Canadians by this 8 time had lost confidence in the Liberals, although they were not wholly pre- 6 pared to put their full trust in the

Percent of Labour Force Percent Conservatives and their new leader, Joe 4 Clark. The result was the fifth minority government in 22 years, this time led by 2 the . It did not last long. By February 1980, Canadians opted once 0 again for the Grits, handing Trudeau his 1960 1972 1950 1966 1978 1988 1990 2000 1954 1962 1964 1970 1976 1980 1982 1986 1992 1998 2002 1948 1956 1958 1968 1974 1984 1994 1996 1952 fourth mandate. St-Laurent Diefenbaker Pearson Trudeau (Clark) Mulroney Chrétien Initially attracted to a full dose of Source: Statistics Canada, Historical Statistics of Canada and Canadian Economic Observer; activism, which included the National Department of Finance Canada, Revue économique, April 1980. Note: Adjusted for series break in 1950, 1966 and 1976. Energy Program (NEP), an effort to craft

34 OPTIONS POLITIQUES JUIN-JUILLET 2003 Six stewards of Canada’s economy an industrial strategy, and two stimula- Canada’s declining share of world trade. enough to offset the many other trou- tive budgets, Trudeau and his ministers More important, however, were grow- bling initiatives. In its dying days, finally accepted defeat in the face of ing signs that Canadian firms were not Trudeau and his ministers toyed with a overwhelming international forces meeting global competition. Canada’s new bilateral initiative with the United pointing in the opposite direction. The macroeconomic policy stance for much States to free trade on a limited, sec- economic turmoil of the 1970s had fully of the period exacerbated rather than toral basis, but to little avail. discredited demand-side economic facilitated the adjustment challenge. The activism of the 1970s did not management and stimulated a reaction Trade policy was not immune to lead to much change in the basic struc- from supply-side monetarists. In the the policy activism of the 1970s and ture and performance of Canadian indus- United States, Paul Volcker, chairman of early 1980s. By the early 1980s, how- try. If anything, there was depressing evidence of just how difficult By the time Trudeau took his walk in the snow in February it is for governments to pick 1984, both Canada’s fiscal position and international winners and how easy it is for payments positions were in a parlous state. Trudeau and his losers to find governments. ministers had demonstrated a continuing inclination to ignore Government support for declining industries such as the warning signs, concentrating instead on politically textiles, clothing, footwear, persuasive short-term nostrums. Its focus on constitutional, and furniture underlined the social, distributional, and similar issues had come at the extent to which political and expense of sound economic stewardship. market judgments differ. Additionally, the economic the Federal Reserve, confronted by ever, it was clear that the two con- turmoil of the decade undermined President ’s stimulative stants that had emerged in the decade investor confidence and added to the combination of tax cuts and new mili- following the Second World War woes of the weaker parts of the manufac- tary spending, decided the time had would continue to dominate Canadian turing sector. come to wring inflation out of the US trade policy choices: the relationship economy, a view shared by most central with the United States, and the impor- rudeau did not claim that the land bankers, including Canada’s Gerald tance of the GATT-based trade rela- T was strong when he left, at least not Bouey. US and other interest rates tions system. Nevertheless, much economically. Indeed, his successor, reached unprecedented levels, leading energy was expended on exploring , ran against the govern- to a global . Canadians found alternatives to both. ment’s record and promised major themselves renewing mortgages at rates A plethora of initiatives were pur- change. Canadians, however, decided in the high teens, while short-term sued in an effort to change the direc- overwhelmingly to leave the clean up of treasury bills peaked at 22.75 percent. tion and content of Canadian trade Trudeau’s economic mess to Brian Canada did not escape the recession this and investment flows. Alliances, agree- Mulroney and the Tories. Over the next time. The Trudeau government aban- ments, and common cause were nine years, that was the task to which doned wage and price controls, opting sought with a variety of non- Mulroney and his ministers dedicated once again for moral suasion, urging traditional partners, all in an effort to their energies, a task that Canadians large employers and provincial govern- diversify Canadian trade and industri- found increasingly difficult to accept, ments to adopt its 6 and 5 program of al patterns, increase the range of the but which, with the passage of time, voluntary wage and price restraints. Canadian economy, and reduce looks more and more impressive. dependence on US markets and capi- From a trade policy and trade per- anada was not alone in dealing tal. Few of them made much long-term formance perspective, Mulroney earns C with problems of stagflation, and policy sense and most tilted against the highest score among the prime these unsettled global conditions had a the natural forces of geography, con- ministers under review for carrying significant impact on Canada’s trade sumer preference, and business judg- through on the conviction that performance, although rising inflation ment. The only bright light was the Canada needed to open its economy hid the full impact of the slowdown in government’s quiet commitment to much more to international competi- the growth in Canada’s merchandise make full use of the new round of tion by negotiating first the Canada-US exports and imports. The real value of GATT negotiations, the Tokyo Round, Free Trade Agreement and then the exports declined in the period 1973-5, to improve market access for competi- NAFTA. He consolidated that effort by while imports stagnated. Over the next tive Canadian producers and to expose taking an active and forward-looking six years, recovery in both exports and the domestic economy to greater com- approach to the multilateral negotia- imports remained at disappointing lev- petition. Important and useful as the tions that transformed the GATT into els. Many Canadians fretted about Tokyo Round proved, it was not the World Trade Organization. The

POLICY OPTIONS 35 JUNE-JULY 2003 Michael Hart and Bill Dymond

combined impact of these three trade While Michael Wilson, Mulroney’s and reorientation of priorities ushered negotiations provided both an incen- first finance minister, could not con- in by Brian Mulroney, Chrétien succeed- tive and a reward for Canadian firms to vince the prime minister to take tougher ed in making freer trade the norm of adjust to greater international competi- fiscal measures, he did work with Bank Canadian foreign economic policy. tion, and thus provide Canadian con- of Canada Governor John Crow to Under Mulroney, free trade had proven sumers with a greater range of goods squeeze inflation out of the economy a necessary but nevertheless controver- and services at world prices. and strengthen the value of the dollar, sial and divisive policy. By ignoring the Mulroney’s trade negotiations even if these measures complicated policy instincts of some of his ministers were complemented by a range of adjustment to freer trade, and added to and the criticisms they had expressed in other initiatives aimed at providing unemployment pressures. opposition, Chrétien not only embraced Canadians with a more competitive the free-trade legacy, but built on it, economy, including the conversion of ulroney’s policies and programs making clear to all and sundry that free the federal sales tax into the goods and M put Canada fully on the road to trade was now the default position in services tax, regulatory modernization, economic recovery. His style, however, Canadian trade policy. the reduction of investment controls, irked many Canadians, and combined Similarly, Chrétien and his first privatization of many crown corpora- with the pain that some of the adjust- finance minister, , accepted tions, and efforts to reduce inflation- ments required to make the Canadian a second aspect of the Mulroney legacy ary pressures. The combined impact of economic sustainable in the long term, and proved more adept and thorough in these initiatives induced a major led to the greatest reversal in political implementing it. Mulroney had made restructuring of the economy, the case that Canada was living including its reorientation Canadians decided overwhelmingly beyond its means; Chrétien did along more economically logi- to leave the clean up of Trudeau’s something about it, ruthlessly cal north-south lines, allowing economic mess to Brian Mulroney cutting program spending and Canadian firms to become transfers to the provinces, more specialized and competi- and the Tories. Over the next nine changing Canada’s fiscal posi- tive and integrated into North years, that was the task to which tion from an unsustainable American-based supply and dis- Mulroney and his ministers deficit position to one of grow- tribution networks. Canada’s dedicated their energies, a task that ing surpluses. While some mem- trade dependence nearly dou- bers of his cabinet continue to bled as more and more firms Canadians found increasingly believe that Canada can out- became more specialized and difficult to accept, but which, with grow its national debt, Chrétien trade oriented. the passage of time, looks more and has played the fiscal file bril- During Mulroney’s two more impressive. liantly, promising new spending terms in office, his government dividends while sticking to the did less well in restoring Canada’s fiscal fortunes in Canadian history. From a fundamentals of fiscal probity. position. Mulroney inherited a situa- record 211 seats in 1984, the Tories tion that most economists judged under Mulroney’s hapless successor, Kim n summary, and focusing largely on unsustainable. The federal government Campbell, were reduced to 2 seats in the I the economic aspects of their man- was spending substantially more than it 1993 election. While Canadians seemed dates, we reach the following conclu- was taking in from tax and other rev- almost unanimous in their rejection of sions about the six full-term prime enues, relying more and more on bor- Mulroney and the Tories, his successor, ministers who served during the first rowing to finance its program spending Jean Chrétien, proved over the next fifty years of Queen Elizabeth’s reign: and adding steadily to the national decade that he had no intention of ● St-Laurent inherited a country debt. Mulroney succeeded in restoring undoing Mulroney’s policies. With the basically in good political and eco- balance to the government’s operating exception of a few marginal and symbol- nomic shape, and left a country in budget through a combination of ic changes, Chrétien accepted that the similar shape for his successor. His reduced program spending to levels transformation in the Canadian eco- strong suit, and that of his cabinet approximating the government’s rev- nomic wrought by the Tories neither and senior officials, was manageri- enues and new taxes, but continued to could nor should be undone. al competence; they were prepared rely on borrowing to finance the It is still too early to reach a full to engage government as neces- national debt. Over the course of their assessment of Chrétien’s trade and eco- sary, but were not convinced that nine years in office, Mulroney and his nomic legacy. Based on his follow- government programs and policies colleagues added $300 billion to the through on two critically important were necessarily the answer. St- national debt, all of it spent on servic- policies, however, Chrétien deserves Laurent’s transactional approach ing the debt inherited from the Liberals. high marks. Building on the reforms to problem-solving ensured that

36 OPTIONS POLITIQUES JUIN-JUILLET 2003 Six stewards of Canada’s economy

few problems became crises and country in good shape and left it nificant problems and managed to most opportunities were pursued. in worse shape. solve or lower the temperature on ● Strong on zeal and purpose, ● If Diefenbaker showed the limits of many of them. In short, he left the Diefenbaker proved weak on idealism, Pearson may have shown country in better shape than he resolve and delivery. An idealist those of pragmatism. Of all the found it, but he also accommodat- with few pragmatic bones in his prime ministers under review, he ed too many of the harebrained body, he proved that the appears to have been most com- schemes of some of his ministers Canadian federation is best gov- fortable with a strong, if not always and advisors, creating a legacy that, erned by those who know the united, cabinet. He and his team in the hands of his successor, creat- value of compromise. He found a inherited a country with some sig- ed problems that would come back to haunt the country. ● As time passes, the Trudeau lega- FEDERAL DEBT cy appears more and more limit- 90 ed. A man of great potential and with charismatic voter appeal, 80 much of his energy was misdi-

70 rected on policies that went either nowhere or in the wrong 60 direction. Withering in his criti-

50 cism of nationalism in , he turned a blind eye to one mis- 40 guided economic nationalist Percent of GDP Percent experiment after another. The 30 result was a marked deteriora- 20 tion in Canada’s fortunes on almost all fronts: economic, fis- 10 cal, constitutional, internation- 0 al, and national security. ● 1960 1950 1966 1972 1962 1964 1948 1968 1970 1954 1956 1958 1978 1988 1990 2000 1974 1976 1980 1982 1984 1986 1992 1994 1996 1998 2002 1952 As time passes, Mulroney’s legacy St-Laurent Diefenbaker Pearson Trudeau (Clark) Mulroney Chrétien looks more and more impressive. He inherited a country with a Source: Calculated using data from Statistics Canada CANSIM Matrices # 3198, 3199, 6581, 6582, 6585, 8629 and National Income and Expenditure Accounts. growing number of problem files. He left a country with many of FEDERAL BUDGET BALANCE them resolved or on their way to resolution. His economic initia- 8 tives will prove particularly endur- 6 ing and constructive. ● Chrétien inherited a country on 4 the way to recovery from the

2 excesses and damage of the Pearson-Trudeau legacy and had 0 the good sense not to try to restore

-2 that legacy, building instead on Percent of GDP Percent the Mulroney record and complet- -4 ing or strengthening some of the most important reforms. His -6 strength lay in returning govern- -8 ment to the managerial style of St- Laurent, reducing expectations -10 and eschewing the transforma- 1960 1950 1962 1964 1966 1972 1954 1956 1958 1948 1968 1970 1952 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 St-Laurent Diefenbaker Pearson Trudeau (Clark) Mulroney Chrétien tional, challenging approach of

Operating surplus or deficit (-) his predecessors. His third govern- Total budgetary surplus or deficit (-) ment, however, shows disturbing signs of a desire to restore some of Source: Department of Finance, Fiscal Reference Tables; Statistics Canada, National Income and Expenditure Accounts; and IRPP estimates. the exorcised Trudeau elements.

POLICY OPTIONS 37 JUNE-JULY 2003 Michael Hart and Bill Dymond

The economy which Chrétien’s North American economy. Domestic Michael Hart is Professor successor will inherit, of course, is vast- demand plays a steadily decreasing role at the Norman Paterson School of ly different from the economy of 50 in determining performance. Most International Affairs at Carleton years ago. St-Laurent managed an econ- importantly, the old instruments of University, and Bill Dymond is Executive omy fuelled largely by domestic intervention have either been aban- Director of the School’s Centre for Trade demand. International trade was doned by virtue of multilateral and Policy and Law. They are co-authors, important, but hardly decisive. His gov- regional trade agreements, or have been with Colin Robertson, of Decision at ernment possessed a full toolbox of largely discredited. What has not Midnight: Inside the Canada-US Free- interventionist policies that could deci- changed is the accountability of gov- Trade Negotiations. Hart has been sively influence economic perform- ernment to the voters for economic per- nominated for the Dafoe Prize, the ance. High tariffs, extensive regulations, formance. When the time comes to Donner Prize, and the Smiley Prize for A a plethora of crown and judge the economic stewardship of the Trading Nation, his definitive history of industrial and agricultural subsidies next prime minister, the criterion will Canadian trade policy from the fur trade were accepted and widely used instru- be how well expectations have been to free trade, which provides more ments. The postmillennium Canadian managed in an environment where detailed background for the assessments economy is fully integrated into the available tools have become fewer. made in this article.

Recommended Reading on Prime Ministers — A Selected Bibliography

Clarkson, Stephen, and McCall, Christina. Trudeau and Martin, Lawrence. Chretien: The Will to Win. : Our Times, Vol. 1: The Magnificent Obsession. Toronto: Lester Publishing, 1995. McClelland and Stewart, 1990. Nash, Knowlton: Kennedy and Diefenbaker: Fear and Cohen, Andrew. A Deal Undone: The Making and Loathing Across and Undefended Border. Toronto: McClelland Breaking of the . Vancouver-Toronto: and Stewart, 1990. Douglas and McIntyre, 1990. Newman, Peter C. Renegade in Power: The Diefenbaker Diefenbaker, John G. One Canada (Three volumes). Years. Toronto: McClelland and Stewart, 1963. Toronto: Macmillan of Canada, 1972. ______. The Distemper of Our Times: Canadian Duffy, John. Fights of Our Lives: Elections, Leadership and Politics in Transition: 1963-1968. Toronto: McClelland and the Making of Canada. Toronto: HarperCollins Canada, 2002. Stewart, 1968. English, John. The Worldly Years: The Life of Lester B. Pearson, Lester B, with John A. Munro and Alex Inglis, Pearson. Volume Two: 1949-1972. Toronto: Alfred A Knopf eds. Mike: The Memoirs of Lester B. Canada, 1992. Pearson. Vol. III, 1957-1968. Toronto: Fraser, Graham. Playing for Keeps: The Making of the Press, 1975. Prime Minister, 1988. Toronto: McClelland and Stewart, 1989. Radwanski, George. Trudeau. Toronto: Macmillan of Graham, Ron. One-Eyed Kings: Promise and Illusion in Canada, 1978. Canadian Politics. Don Mills, Ontario: Collins Publishers, 1986. Sawatsky, John. Mulroney: The Politics of Ambition. Granatstein, J.W. Canada 1957-1967: The Years of Toronto: Macfarlane Walter and Ross, 1991. Uncertainty and Innovation. Toronto: McClelland and Sheppard, Robert, and Michael Valpy. The National Deal: Stewart, 1986. The Fight for a Canadian Constitution. Toronto: Fleet, 1982. Greenspon, Edward, and Anthony Wilson-Smith. Simpson, Jeffrey. Discipline of Power: The Conservative Double Vision: The Inside Story of the Liberals in Power. Interlude and the Liberal Restoration. Toronto: Personal Toronto: Doubleday Canada, 1996. Library, 1980. Gwyn, Richard. Trudeau: The Northern Magus. Toronto: ______. The Friendly Dictatorship. Toronto: McClelland and Stewart, 1980. McClelland and Stewart, 2001. Hart, Michael, with Bill Dymond and Colin Robertson. Sullivan, Martin. Mandate ’68: The Year of Pierre Elliott Decision at Midnight: Inside the Canada-US Free Trade Trudeau. Toronto, New York: Doubleday, 1968. Negotiations. Vancouver: UBC Press, 1994. Thomson, Dale C. Louis St-Laurent: Canadian. Toronto: Hillmer, Norman, ed. Pearson: The Unlikely Gladiator. Macmillan of Canada, 1967. and Kingston: McGill-Queen’s University Press, 1999. Van Dusen, Thomas. The Chief. Toronto: McGraw-Hill, 1968. MacDonald, L. Ian Mulroney: The Making of the Prime Weston, Greg. Reign of Error: The Inside Story of John Turner’s Minister. Toronto: McClelland and Stewart, 1984. Troubled Leadership. Toronto: McGraw-Hill Ryerson, 1988.

38 OPTIONS POLITIQUES JUIN-JUILLET 2003

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