For many, life during the recession of the early ’90s is a distant, rapidly fading memory. And for anyone under 40, it’s the equivalent of a natural disaster in a far away place: You know it happened, and you know that it made many people’s lives miserable, but there’s no visceral connection to it, all of which makes it hard to truly grasp what life was like in the midst of it—and, by consequence, what might await Canadians this time around.
To describe the Bank of Canada’s economic forecast for 2009 as grim would be an understatement. The Bank expects the recession to peak sometime in the next six months, with no tangible rebound until 2010. “Our exports are down sharply,” Bank of Canada Governor Mark Carney told reporters last week, “and domestic demand is shrinking as a result of declines in real incomes, household wealth and confidence.” In all, Canada’s GDP will shrink by 1.2 per cent in the coming year, he predicts. And yet, there was a sprinkle of good news amidst the bad: 2010 could turn out to be a banner year, with growth projected to settle at an “above potential” 3.8 per cent. In the meantime, 2009 will bring both the best and the worst of the recession. The wave will crest but it will also break—just like it did in 1992.
So what was Canada like in 1992? In a word: unemployed.
After steady increases in 1990 and 1991, the unemployment rate hit an eight-year high in 1992: a whopping 11.2 per cent for the year and a peak of 11.8 per cent that November. (An economic think tank suggested the rate would have topped out at 13.7 per cent had 345,000 people not given up altogether on their search for work.) Making matters worse, those who lost their jobs had few prospects for a quick turnaround: the average unemployment spell across the country was 22.6 weeks, a hefty 23 per cent increase from 1989. Ontario—and especially its crucial manufacturing sector—was among the hardest hit, accounting for more than 70 per cent of the country’s job losses. In all, 123 manufacturing plants shut their doors in 1992, leaving 250,000 highly-paid workers out of a job. One restaurant owner in Kitchener was overwhelmed with job applications after posting an want ad for a full-time cashier—at $6.50 an hour. “When you have 290 people apply for one position,” he said, “it makes you wonder what’s happening.” By the time the recession was officially over, 1.6 million Canadians were out of work and another 2 million were on welfare.
At the time, many blamed free trade for those staggering unemployment numbers. A Gallup poll taken in the summer of 1992 found that only four per cent of Canadians supported Canada’s free trade agreement with the U.S. and an overwhelming majority opposed its expansion into NAFTA. On both sides of the border, politicians opposed to the agreement gained significant traction. Jean Chrétien’s Liberals were handed a crushing parliamentary majority in 1993 partly on a promise to re-negotiate NAFTA. (The federal government would later consecrate the deal without pressing for any notable changes.) But no political figure benefited from the debate more than Ross Perot, whose quixotic campaign for the White House was epitomized by a plea to voters to listen to the “giant sucking sound” symbolizing flight of U.S. jobs toward Mexico.
Most of all, though, the wave of unemployment prompted a massive loss of confidence in the Canadian economy. An Angus-Reid poll of residents in 16 countries found Canadians were among the most pessimistic in the world: only 68 per cent expected the economy to improve in the next decade, while 27 per cent figured things would get worse; 60 per cent said they were struggling to get by and 65 per cent were afraid they wouldn’t be able to support themselves in their old age. Even those whose businesses were making money during the recession were aware of just how grim the prospects were for the majority of people. An industrial auctioneer interviewed by Canadian Press in late 1992 said he was making record profits selling off the remnants of failed businesses, but conceded that it was coming at a heavy price: “The last recession cut out the fat. This is cutting out the heart.”
Many of the same trends are re-emerging this time around. Last month, Canada’s consumer confidence level continued its three-month slide, dropping even lower than it did during the early ’90s. “I think what we have on our hands right now,” says Pedro Antunes, the director of national economic forecasting at the Conference Board of Canada, “is very much confidence-led decline.” According to the Conference Board’s report, Canadians have not only seen their financial situation worsen over the past six months, they expect things to become worse still in the near future. Another poll taken earlier this month found 23 per cent of Canadians are worried for their jobs and 33 per cent believe they wouldn’t be able to find work should they be laid off.
Meanwhile, the debate over NAFTA has made a brief reappearance and there are fears—unfounded, so far—that Barack Obama’s presidency could mean a return to protectionist trade policy south of the border. On the employment front, Canada’s job numbers have gotten tangibly worse over the past year. The unemployment rate, currently at 6.6 per cent, hit a three-year high in December—and there are worrying signs it will soon climb much higher, led by a steady decline in Canada’s, and especially Ontario’s, manufacturing sector. (TD Economics predicts Canada could shed as many as 251,000 jobs before the year is over.)
Financial Times columnist Martin Wolf expects 2009 to be the year the underlying institutions that make up the global economy undergo a seismic shift. “Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade,” Wolf wrote in a recent column. “They are wrong. Our choice is only over what will replace it. It is between a better balanced world economy and disintegration.” Should Wolf’s predictions prove true, it could very well signal an end to the boom-bust cycles that have characterized the economy for the better part of the last century and a half. But if the final year of the last severe recession is a reliable indicator, twelve months of massive unemployment, knee-jerk protectionism, and widespread panic may, in the end, not change much at all.