In recent posts, we asked and answered the question: Who of the last three prime ministers was the best fiscal manager? Not surprisingly, the answer depended on which measure of fiscal performance you focused on. If you looked at spending discipline, Jean Chrétien was the winner. If your focus was on reducing debt and balancing budgets, Paul Martin was tops.
In this post, we turn our attention to which prime minister was the best economic manager. Truth be told, most economists don’t believe that politicians actually manage the economy, although their policies can certainly affect the level of activity in the short run and its rate of growth in the long run. However, given that they can’t seem to refrain from claiming the credit when the economy is growing well, we think it is interesting to look at what actually happened under their stewardship.
As with last week, we compare the tenures of three prime ministers: Jean Chrétien, 1994-2003; Paul Martin; 2004-05; and Stephen Harper, 2006-14. All the years refer to calendar years. We adjust the measures for their different tenures when appropriate and, given that Harper is still in office, we close off our comparison of his tenure in the last year for which annual data are available.
Of course, like beauty, economic performance is in the eye of the beholder. There are a number of ways to measure performance and, so, as we did with fiscal measures, we propose several indicators to allow the reader to chose the ones he or she thinks best captures the prime ministers’ performance. The indicators we have chosen to highlight are real GDP growth, the unemployment rate, and wages and salaries.
Chart 1 shows real GDP growth. For the 10 years of Chrétien’s mandate, real GDP grew strongly, at an average annual rate of 3.9 per cent. Martin’s two-year tenure is next at 3.2 per cent on average with Harper’s nine-year (to date) mandate achieving 1.9 per cent on average. Of course, one might say such comparisons are unfair, given that Prime Minister Harper’s tenure included a serious recession. In fact, periods of recession or slow growth are not uncommon occurrences for prime ministers. Indeed, in 1991, there was a decline of a similar magnitude (2.1 versus 2.7 per cent in 2009) and in Chrétien’s 10-year tenure, there were three years of growth of less than two per cent. We take this as a reminder of the dangers politicians face when claiming credit for periods of strong economic performance.
Turning to unemployment in Chart 2, we see that the unemployment rate declined during the Chrétien years, from 11.4 to 7.6 per cent or 3.8 percentage points. During the Martin years, unemployment declined by 0.8 percentage points from 7.6 to 6.8 per cent. Finally, in the Harper years, unemployment rose marginally from 6.8 to 6.9 per cent.
What about weekly wages and salaries? In Chart 3, we see that over the Chrétien years, real weekly wages declined at an average annual rate of -0.5 per cent. The Martin years were tops with average annual growth of 1.0 per cent. The Harper years are in the middle, with annual weekly wage growth of 0.8 per cent on average.
So which PM wins the prize? In terms of growing real GDP and reducing unemployment, Chrétien is the clear leader. In terms of wage growth, Martin is tops. Of course, these are just three possible measures of economic performance. Other measures might result in different rankings.
We don’t believe prime ministers actually manage the economy, despite what they might say. However, with a federal general election looming, politicians are sure to be making claims about their prowess as economic managers. Now you have some facts to help draw your own conclusions.
Paul Boothe is director and Sandra Octaviani is a research associate at the Lawrence National Centre for Policy and Management at Western University’s Ivey Business School.