---------- Forwarded message ---------- Date: Tue, 25 Nov 1997 22:35:20 -0500 From: Eric Jackson <[EMAIL PROTECTED]> Reply-To: [EMAIL PROTECTED] To: [EMAIL PROTECTED] Subject: C4LDEMOC-L: **Star: Asian crisis reveals flaw in Canada's economic� policy By Thomas Walkom <Picture>November 25, 1997 �By Thomas Walkom]> �Asian crisis reveals flaw in Canada's economic policy WHAT A MESS. The Canadian government's economic recovery plan, such as it is, rests on three legs. Now, with Asia in turmoil and domestic interest rates poised to rise, two of these legs seem unduly shaky. The three-legged scheme has been in place since the days of Brian Mulroney's Conservative government. It works this way. Fiscal policy - how much government taxes and spends each year - is devoted solely to eliminating the deficit. Monetary policy - the setting of interest rates - is saddled with three sometimes contradictory goals: keeping inflation low, keeping unemployment not too high, keeping the Canadian dollar in roughly the right range. The third leg, trade policy, is the most important. It concentrates on opening up new export and investment markets to Canadian business. If all of this sounds obvious, remember it was not always thus. From 1879 until the implementation of the Canada-U.S. Free Trade Agreement 110 years later, Canada supported liberalized trade in some areas (like pulp and paper) while protecting domestic industries in others (like washing machines). >From John A. Macdonald on, the ultimate aim of Canadian trade policy was t� o maintain employment. In later years, fiscal policy was directed towards the same end. Those who run things describe this earlier period as one characterized by shocking attempts of government to interfere with free markets. Perhaps. Still, it is interesting to remember that incomes were higher, unemployment lower and life probably happier in the bad, old days of the 1970s. But I digress. Under Prime Minister Jean Chr�tien's government, the Mulroney trade-led policy initially appeared to bear fruit. The free trade deals initiated by the Mulroney Conservatives encouraged export growth. However, they did not necessarily lead to job growth. In the textile sector, for example, exports rose fourfold under free trade while employment fell by 20 per cent. Still, companies in the export sector prospered. The tax revenues from these revived industries, when combined with savings gleaned from Finance Minister Paul Martin's savage cutbacks in social programs, virtually eliminated Ottawa's deficit. Meanwhile, Bank of Canada governor Gordon Thiessen relaxed short-term interest rates just enough to bring the jobless rate down somewhat, without letting it fall below 9 per cent. As a result, even during the so-called recovery, fear of joblessness never went entirely away. This ensured that most workers were unable to prevent their employers from reducing labour costs through restructuring and downsizing. Shedding labour, in turn, enabled Canadian companies to compete more aggressively abroad. In this sense, monetary policy served trade. Critics complained that the allegedly nationalist Liberals were giving away the store - through such deals as the proposed Multilateral Agreement on Investment or by the government's refusal to restrict the patent monopolies of multinational drug companies. The critics missed the point. The Liberals were happy to give away any number of stores if doing so could help them crack global markets. Trade liberalization was all. And so the government worked away - a deal with Chile here, a banquet for a Chinese dictator there. True, unemployment remained high. But the export boom finally spilled over into the domestic economy and - for those with jobs - things were finally starting to look up. Until last week, when financial failures in Japan and South Korea led the ongoing Asian currency crisis into a new, more dangerous phase. That was when the fundamental flaw of the Canadian government's economic policy became evident. The flaw is simple and it is this: A country whose entire strategy is based on opening up world markets will find itself adrift if and when those markets run into trouble. In Vancouver this week, Canadian officials are scrambling to sell their market-opening ideas at the Asia Pacific Economic Co-operation conference. Unfortunately, few are listening. Asia is busy with the crisis in South Korea and Japan. Even the U.S. recognizes that the world's financial and trading systems face perilous problems. Only Canada persists. The federal government continues to press for trade deals - and will give up virtually anything to attain them - because it has no other ideas. It forgets that even countries which rely on trade, as Canada has long done, need a fallback position. It forgets that the entire economic history of this country has been an attempt to find balance - between taking advantage of the international marketplace and falling victim to the violent storms which regularly disrupt it. ------------------------------------------------------------------------ Thomas Walkom's column appears Tuesdays. | |To unsubscribe: send mail to [EMAIL PROTECTED], no subject, with the |following message (and no other text): unsubscribe c4ldemoc-l
