Back in the mid-1980s, there was a joke going around official circles in Ottawa that said a lot about the national mood. The joke went like this: How do you start a small business in Canada? Just take a large one and watch it shrink.
The dollar was down. Economic growth was sluggish. The Canadian auto industry was being written off in some circles as a mature (meaning “dying”) sector. And the prospect of free trade with the U.S. was being met with a “What’s the use?” mentality.
Fortunately, the ’80s ended with the Canada-U.S. free trade agreement and, once a two-year recession ended in 1993, the mood of the country began to change. The auto industry recovered and was playing a leading role again, and Canadians were excited as a chronic export deficit turned into a healthy surplus. Most important, talk of entrepreneurship was everywhere.
By the end of the 1990s, Canadians were looking forward and talking about economic prospects even though the dollar would hit a record low of US61.98¢ in 2002.
As former prime minister Brian Mulroney has noted several times, the free trade agreement was about more than tariffs and non-tariff barriers. The agreement represented the crossing of a psychological threshold. A generation of Canadians suddenly began to feel entrepreneurial and confident.
This change probably came about because there was a fulsome and spirited national debate, involving all sectors, about whether free trade was right – so much so that Mulroney was in political trouble early in the 1988 election. A lesser leader would have cut his losses and pulled free trade from his platform.
Mulroney, to his credit, stuck with what he believed was best for Canada and wound up winning the 1988 election with a majority. And free trade prevailed.
The Harper government, in its nine years in office, negotiated 10 free trade agreements, including one with South Korea that came into force in 2015, the Comprehensive Economic and Trade Agreement with Europe and the massive Trans-Pacific Partnership. There also are eight other agreements at some stage of negotiation, including one with India.
All in all, the previous government’s free trade initiatives are quite remarkable. But because of the Harper regime’s secretive, belligerent style and their love for doing things under cover, like thieves in the night, the country never got an emotional boost like the one the Canada-U.S. deal induced.
Today, we’re back in a trough of despair. We’ve gone from being the seventh-most competitive country globally in 2000 to the 14th-most competitive today. The Canadian auto and the oil and gas industries are being written off. The new federal government and its sunny ways are in their first crisis.
In fairness, most of the trouble the Trudeau government now faces on the economy can be blamed on the preceding regime. Financial markets think we are a petrostate, thanks to the Harper government’s obsession with the energy sector and indifference to the rest of the economy. (None of the Harper government’s ministers bothered attending the Paris Air Show, even though Canada has the third-largest aerospace industry in the world.)
Canadians, particularly First Nations Canadians, have no faith in the regulatory process governing pipelines, thanks to the Harperites’ hostility toward environmentalists, stacking the Energy Board with cronies and changing the law to allow an executive over-ride of that board’s decisions.
But who says politics is fair? This is why Justin Trudeau was in Davos selling Canada’s virtues. One of the new PM’s lines – “My predecessor wanted you to know Canada for its resources. I want you to know Canadians for our resourcefulness” – is likely to be remembered for years as a signature sound bite of Trudeau’s leadership.
Whether the billionaires’ club in Davos was convinced remains to be seen. But Trudeau needs to stimulate Canada’s economy. That is probably why Bank of Canada governor Stephen Poloz has signalled he won’t mind if this spring’s budget deficit goes above $10 billion to provide fiscal stimulation in the coming year.
But an immediate lift to the mood of the country is in order. Formally opening free trade negotiations with China might be just the spark to get Canadians excited about their future again.
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