Economic analysis

Judging Harpernomics

We asked three economists to judge Stephen Harper on his handling of the economy

Conservative leader Stephen Harper a rally  Monday, September 21, 2015  in Peterborough ON. Ryan Remiorz/CP

Conservative leader Stephen Harper a rally Monday, September 21, 2015 in Peterborough ON. Ryan Remiorz/CP


Economist at Unifor

Conservatives traditionally claim they are the best economic managers, and they are playing that card again in the current federal campaign. This time, however, it is proving less effective. Opinion polls now indicate no clear difference between the Conservatives and their opponents on key questions like who is best capable of managing the economy and creating jobs. This suggests the traditional Conservative advantage on economic issues has disappeared.

There’s an obvious reason for slipping Conservative economic credibility: they’ve been in power for almost a decade, and it’s been the worst decade for Canada’s economy in postwar history. That painful statistical reality, verified by the personal hardship of millions of Canadians, constitutes an enormous hill for Conservative campaigners to climb.

With my colleague Jordan Brennan, we developed a comprehensive statistical review of Canada’s economic performance since the Second World War. We identified 16 core indicators: standard measures such as job-creation, unemployment, GDP growth, productivity, personal incomes, debt, and more. We assembled consistent historical data, in most cases stretching back to 1946, from official public sources. (Our published report reprints the entire database, for anyone who wants to double-check.) Then we ranked the postwar prime ministers (all who held office for at least one full year) according to each criterion.

For seven of the 16 indicators, the Harper Conservatives ranked or tied last among all postwar prime ministers; it ranked or tied second-last in another six cases. Across all 16 indicators, the government’s average ranking was the worst of any postwar administration—not even close to the second-worst (another Conservative, Brian Mulroney). Our analysis was based on annual data to 2014, so it doesn’t even reflect the effects of this year’s recession.

Of course, the global financial crisis of 2008-09 has been part of the Conservatives’ problems. But Canada experienced 11 official recessions since 1946 (including this year’s), and the 2008-09 downturn was neither the longest nor the deepest. Previous prime ministers also confronted daunting global problems: the Korean and Vietnam wars, oil price shocks, stagflation, 9/11, and other financial panics.

Compared to other industrial countries, too, Canada’s once-vaunted reputation has slipped. For example, measured by job creation relative to population growth in the prime working-age cohort (15-64 years), Canada ranks just 20th of 34 OECD countries under this government’s Conservative tenure. Mediocre, not exceptional, is the adjective that springs to mind.


So the self-congratulation that typifies Conservative economic rhetoric is misplaced. In reality, Canada’s economy has endured a decade of sustained disappointment, the roots of which run far deeper than falling oil prices. Our historical analysis highlighted some key factors behind this subpar performance, reinforcing the conclusion that Conservative policies have harmed Canada more than they helped.

First-year macroeconomics students learn there are four major components of aggregate demand: four “engines,” if you like, that power growth forward. Consumer spending is the biggest (accounting for about half of GDP), but in some ways the least strategic—since it tends to follow the economy’s trajectory, rather than leading it. This is because consumers need work and income before they can sustainably spend, so consumer spending generally follows other trends.

In the private sector, the most important potential engines are business capital spending and exports. Both can provide initial bursts of demand, which then multiply through the economy via new jobs, new incomes, and even more spending. Conservatives believe the best way to nurture either is to roll out a red carpet, create as favourable a business environment as possible, and then wait for the market to take off. This is the rationale for policies like corporate tax cuts, deregulation, and free trade deals.

The only problem is that this “trickle-down” approach hasn’t worked. Despite repeated favours, business capital spending has been sluggish (under Harper, growing the second-slowest of any postwar administration). Tax cuts just reinforced corporate cash hoarding, not capital spending. Meanwhile, Canada’s exports performed abysmally: growing just 0.3 per cent per year since 2006, by far the slowest in postwar history, and the worst of any major industrial country. We need to do much more than cut taxes, sign trade deals, and slash red tape to truly nurture the industries and companies we need to invest, innovate, and sell to world markets.

The remaining potential engine of growth is government itself: through both its own investments (in infrastructure) and current programs. Here, too, the Conservative government has been part of the problem, not the solution: deeply cutting real per capita program spending since 2011, and thus helping set the stage for this year’s recession.

In light of these numbers, it is not surprising that the once-impressive Conservative economic reputation has faded, with big implications for Oct. 19. The big outstanding question for voters, is which other party offers the more convincing plan for finally getting our economic engines back in gear.


Sprott School of Business, Carleton University

As someone who has taught in countries around the world for the past 25 years, it has become increasingly clear from these experiences, supported by comparative empirical research on OECD and developing countries, that Canada and Canadians have an abundance, affluence and security (of energy, food and safety) that most people in the world can only dream about. This partly explains why Canada is seen as the “promised land” for millions and millions around the world. And why so many people from around the world desperately want to emigrate to Canada.

Yet critics, like Jim Stanford and others, claim that Canada’s economy under Stephen Harper has the worst record in the past 70 years going back to William Lyon Mackenzie King in 1946 (before Jim Stanford and I were even born—and that was a very long time ago).

I must admit I used to indulge in these comparison games in my younger days. Indeed, I used to tell my father that my used 1994 Toyota Camry was vastly superior to his 1963 American Motors Rambler Classic because my car had power steering, power brakes, air conditioning, air bags, seat belts and power windows. My father used to gently remind me that in 1963 none of those inventions or safety regulations or consumer expectations existed, so it was not even possible to compare the two vehicles.

This is why the OECD, IMF and statistical agencies such as Statistics Canada do not compare a country in one era with one set of norms, values, expectations, laws, regulations, interest rates and growth rates to a country in a different era. Comparing postwar Germany in 1955 with the Deutschmark to post-modern Germany of 2015 with the euro, is, in the words of statisticians, “incommensurate” or not comparable. In plain English, we are comparing apples to computers to elephants.

But we can compare countries to similar developed countries—in the same era. We can compare Canada to the United States, Germany, France or Italy in the period from, say, 2006-14, during Harper’s time in office, as each country has dealt with similar macroeconomic, trade and technological environments.

When we examine the job creation record—in the current era—of Canada compared to its peer group, the G7, we discover that Canada has outperformed them all (on an indexed or relative scale), with 1.3 million jobs created since the Great Recession.

This is a remarkable accomplishment when we consider the G7 peer group includes the United States, Germany, Japan, U.K., France and Italy—among the largest (excepting China) and most advanced economies in the world.

We then turn to the second major issue, which concerns incomes. Some critics and opposition parties allege the Canadian middle class is stagnating or declining or disappearing (or possibly all three).

Yet in 2014, a major 35-year study by the Luxemburg Income Study group and the New York Times of the largest economies in the OECD, found that Canada’s middle class was more prosperous than any other large economy, including the United States and Germany.


Now consider wealth. The most recent analysis by Statistics Canada concerning the 10-year change in household assets found that between 1999 and 2012, the average net worth of Canadian families jumped 73 per cent (from $319,800 to $554,100) even after adjusting for inflation.

Finally, let’s turn to GDP per capita (measured in U.S. dollars). According to the OECD, Canada’s GDP per capita, at US$44,000, is significantly above the EU-28 average of US$36,237. We’re significantly above the eurozone countries (US$38,619) as well as the overall OECD average of US$38,914. It must be noted that the EU countries are classed as high-income countries by the World Bank.

Given all this, Canadians should challenge critics to explain the following:

How could Canada have created more jobs relative to the size of our economy since 2008 than any of the other G7 nation, if the employment picture is so terrible?

How can we have the wealthiest middle class of large OECD economies, if the middle class is supposedly collapsing?

How can the net worth of households have increased so much over the last 10 years, if our standard of living has declined?

How can Canada’s economic output be so much higher than the averages of the OECD, EU and the eurozone, if the economy is in such bad shape?

Finally, Canadians should challenge the critics to explain this all-important question: If Canada is doing so poorly, why do people from around the world want so desperately to move here?

I have learned in the past 25 years what many Canadians already know and what the mountain of statistics prove: Canada is recognized by ordinary people the world over as an oasis of stability, prosperity and freedom in an international ocean of uncertainty, chaos and danger. All of this has only improved over the last decade, as Canadians experienced measurable increases in our standard of living. For that, Harper deserves credit.


Ivey Business School, Western University

The Harper years are best summarized by the country’s export record. Despite the government’s best intentions to support the sector, our goods exports (including both manufactured goods and raw materials) as a percentage of GDP has fallen from 31 to 26 per cent since Stephen Harper first took office in 2006. The disconnect between intentions and outcomes tells a story about our country’s failures of diplomacy and failure to capitalize on a commodity boom.

On first glance, Canada’s export decline is puzzling, since there is a great deal to like about the government’s trade policies. Canada has signed a large number of free trade deals and foreign investment treaties. Border infrastructure was upgraded during the recession and tariffs were eliminated on manufacturing inputs, an important measure that has not received nearly enough attention.

Then why have our goods exports been so lackluster? Some of it is due to factors outside of the government’s control, such as the global finance crisis and slowing growth in China. But much of it has to do with two large themes from the Harper years: a failure to deliver and a lack of diplomacy.

While Canada has signed a record number of trade deals, most of them have been marginal in nature; Jordan and Honduras will never be among our largest export markets. The two biggest trade agreements, CETA (Europe) and the Trans-Pacific Partnership remain in limbo. The next largest deal negotiated by the Harper government, the Canada-Korea Free Trade Agreement has yet to deliver meaningful results, as Canada lacks an obvious strategy to increase the footprint of Canadian business into the country and Korea promptly banned Canadian beef exports after the deal was entered into force. Exports to Korea have actually fallen since the deal was signed.

A much larger concern for Canada is our deteriorating diplomatic relationships with our largest trading partners. Due to a combination of geographic proximity and market size, Canada has five major export markets: Japan, the European Union, China, Mexico and the United States; our relationship with the latter four have been strained over the last decade, harming our exporters.


European Union: While Canada has a (hopefully soon to be complete) trade deal with the EU, Canada’s brand has taken a reputational hit in the EU thanks to our inability to implement credible greenhouse gas emissions policies with respect to the oil sands.

China: David Mulroney, Stephen Harper’s former foreign policy adviser and former Canadian ambassador to China, has been highly critical of Canada’s “erratic approach” to China, where we have alternated from cool-to-warm-to-cool on the world’s largest economy, causing us, in Mulroney’s view, to no longer be taken seriously in the region.

Mexico: Canada’s ongoing visa dispute with Mexico has limited the ability of Canada to attract capital and talent from the rapidly growing country, and our approach risks shutting Canadian companies out of continent-wide supply chains.

United States: Canadian exporters to the United States still face significant border delays, “buy American” provisions, and a overpromised and underdelivered regulatory harmonization agenda. For example, our chemical exporters waited three years to have our chemical hazard communications regulations harmonized with the United States, to be given new rules that are significantly disharmonized with those of our southern neighbour (Full disclosure: I own a company that performs regulatory compliance consulting for the chemical industry). Keystone XL is looking like it will never get built.

A well-read 2014 Bank of Canada study showed that Canadian manufacturers are setting up operations south of the border to service the market, rather than exporting from Canada. It is not difficult to understand why. A company in Oshawa, Ont., that wishes to export to the United States faces a number of hurdles. First they need to get their product to the border, which traffic gridlock around the GTA makes difficult. Then they face long and variable delays at the border. It has become much cheaper and easier to simply set up shop in the United States rather than expand in Canada. Or, as one of my Canadian clients put it to me, “You can have all the tax incentives and research grants in the world; none of that matters if you can’t get product to market.”

Exports are vital to the Canadian economy, not only in that they are the price we must pay for imports. Canada is a relatively small market in the global scheme of things; the only way for our firms to build economies of scale is through exports. A closed Canadian economy is ultimately a less productive one, with a lower standing of living for all. A generation from now, I believe historians will view the Harper years as a lost opportunity, despite a number of smart, well-designed trade policies. The next government will need to work on improving our relationships with our largest trading partners if we are to see Canada re-emerge as a trading powerhouse.

Disclosure: Mike Moffatt has worked with Canadian politicians and policy-makers of all political stripes to craft more effective public policy, including his most recent role as an outside economic adviser to Liberal Leader Justin Trudeau.

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