GOOD SENSE VERSUS COMMON SENSE: CANADA'S DEBT DEBATE AND COMPETING HEGEMONIC PROJECTS by Seth Klein B.A. (International Relations) University of Toronto, 1991 B.Ed University of Toronto, 1992 THESIS SUBMITTED IN PARTIAL, FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in the Department of Political Science O Seth Klein 19% SIMON FRASER UNIVERSITY JUNE 1996 All rights reserved. This thesis may not be reproduced in whole or in part, by photocopy or any other means, without permission of the author. Approval Name: Seth D. Klein Degree: Master of Arts Title of Thesis: Good Sense Versus Common Sense: Canada's Debt Debate and Competing Hegemonic Projects Examining Committee: Chair: Dr. Peggy Meyer Dr. Stephen McBride Senior Supervisor Professor, Department of Political Science C_. Dq Warforie GriFfiih nohen Proressm, Department of Political Science -. Dr. Jane Plllkingham External Examiner Assistant Professor, Department of Sociology and Anthropology Date Approved: I.i 3--9 Pa PARTIAL COPYRIGHT LICENSE I hereby grant to Simon Fraser University the right to lend my thesis, project or extended essay (the title of which is shown below) to users of the Simon Fraser University Library, and to make partial or single copies only for such users or in response to a request from the library of any other university, or other educational institution, on its own behalf or for one of its users. I further agree that permission for multiple copying of this work for scholarly purposes may be granted by me or the Dean of Graduate Studies. It is understood that copying or publication of this work for financial gain shall not be allowed without my written permission. Title of Thesis/Project/Extended Essay Good Senseversus Common Sense: Canada's Debt Debate and Competing Hegemonic Projects. Author: (signature) Seth Klein (name) (date) Abstract This thesis applies Gramscian hegemonic theory to a study of the Canadian national debt debate. It is argued that the debt debate pits two competing projects against one another: a neo- conservative hegemonic project, challenged by a popular sector counter-hegemonic project. Using the national debt debate as a case study, this thesis examines the conditions and strategies under which hegemony may be successfully established, maintained and challenged. This thesis finds that the neo-conservative project in Canada is hegemonic, but inherently fragile. Neo-conservative ideas regarding the origins of the debt, and neo-conservative prescriptions with respect to deficit reduction have become the new "common sense," accepted by much of the public and firmly supported by the state. Neo-conservative hegemony resulted from favourable economic conditions, compelling moral and intellectual leadership, and effective strategy. This thesis provides a detailed account of these interconnecting factors, highlighting the strengths of the neeconservative project. It is argued nwconservative hegemony remains inherently vulnerable due to the inability of the neo-conservative project to deliver material prosperity for most people. Evidence is presented demonstrating that the neo-conservative policies responsible for the debt's accumulation - monetarism, regressive tax reform, free trade, and financial deregulation - confer material benefits to the corporate class, while eroding the material conditions and security of most Canadians. Similarly, the dominant approach to eliminating the deficit places the burden of deficit reduction primarily on the working and middle classes. This reality may be used by the popular sector to put the neo-conservative project onto the ideological defensive, provided it can effectively highlight the issue of public debt as proof of the failure and inequality of neo- conservatism. Acknowledgements In writing this thesis, I have received the help and support of numerous people. I would like to thank my parents Bonnie and Michael, my grandparents Anne and ~hil,and my sister Naomi for their support, encouragement and understanding. I would like to thank my roommate Annthea Whittaker for always being up for a discussion of ideas and for tolerating me during the writing of this project. I would like to thank the rest of the farm - Nadene Rehnby, Rick Waines, Dirk Van Stralen, Catherine Ivison, Diana Gibson, and the kids - for supporting my work and sustaining the spirit, with special thanks to Nadene for her skillful editing and to Rick for generously relinquishing his computer for three months. My thanks to friends Kyo Maclear and Coro Strandberg for their ideas and encouragement. The ideas developed here also owe a debt of gratitude to Jean Swanson, Jim Stanford, Duncan Cameron, John Dillon, Mary Rowles, and - though I know them only through their writing and speeches - to Linda McQuaig, Maude Barlow, and Bruce Campbell. Last but not least, I am especially grateful to my thesis advisers - Stephen McBride and Marjorie Griffin Cohen - for their encouragement, time and academic guidance. Stephen and Marjorie are models of intellectuals engaged with the critical political-economic issues of our time; academically rigorous but not afraid to declare their commitment to social justice. Table of Contents Chapter. One: Introduction and Theoretical Framework ..................... 1 1.1 Relevance of the Topic.................................................................... -1 1.2 Central Thesis ............................................................................... 2 1.3 Principal Schools of Thought and Controversies ..................................... 5 1.4 Areas Requiring Further Research ........................................................7 1.5 Scope and Outline ..........................................................................8 1.6 Research Methodology .................................................................. 10 1.7 Theoretical Framework ................................................................. 10 1.7.1 Gramscian Hegemonic Theory ................................................. 13 1.7.2 Applications of Gramscian Hegemonic Theory .............................. 17 Chapter Two: Competing Explanations for the Growth of Public Debt .Setting the Context for the Current Debate ........................ 21 2.1 The Dominant Explanation for the Debt's Accumulation: The New Common Sense ........................................................................... -22 2.2 Development of a Counter-Hegemonic Explanation ................................. 26 2.2.1 The Mimoto Study .............................................................-26 2.2.2 Other Studies Supporting the Mimoto Findings ............................29 2.2.3 Highlighting Foregone Taxes ................................................... 31 2.2.4 Focusing on Unemployment................................................... -33 2.3 Federal Debt Holdings ....................................................................37 2.4 Explaining the Changing Composition of Debt Holdings ..........................40 2.5 Benefits Accrued from the Debt's Growth and its Associated Policies ...........42 2.6 Paying the Price for Debt Accumulation ................................................47 2.7 Explaining the Debt's Growth - Hegemonic Theory Revisited .....................49 2.8 Chapter Conclusion .......................................................................51 Chapter Three: The Debt Debate Played-Out ................................. 52 Key Players in the Debt Debate ..........................................................53 3.1.1 The Neo-Conservative Coalition ..............................................53 3.1.2 The Popular Sector Coalition .................................................-57 Ideological Strength of the Neo-Conservative Project ..............................60 3.2.1 Key Hegemonic Ideas and Assumptions .....................................-60 3.2.2 The Conditioning Framework ................................................-64 3.2.3 Intellectual and Moral Leadership.............................................. 65 Methods of Persuasion Employed by the Hegemonic Project ......................68 3.3.1 The Role Played by Think Tanks and the BCNI ............................68 3.3.2 Using Debt Data to Heighten Public Concern - Deconstructing the Numbers Game ...........................................-75 3.3.3 The Role Played by the Media - Getting the Public on Board ..............78 3.3.4 Using Influence Over Financial Markets to Build a Sense of Crisis ......83 3.3.5 Using Political Financing to Win PartylState Support ......................85 3.3.6 Using the Resources of the State .............................................87 Clash Points Between Competing Hegemonic Projects .............................89 3.4.1 The Controversy Surrounding the Mimoto Study ............................90 3.4.2 The Debate Surrounding Linda McQuaig's Book ..........................96 3.4.3 Further Debates Surrounding Monetary Policy and the Bank of Canada .............................................................99 v Table of Contents continued... 3.4.4 The Debate Enters the Church .................................................104 3.4.5 To Tax or Cut .................................................................. 105 3.4.6 The Lead-Up to the 1995 Budget ........................................... 108 3.4.7 What the Polls Say - the Popular Score Card Thus Far .................. 114 3.5 Chapter Conclusion ..................................................................... 117 Chapter Four: