Doug,
this is a classic case in which the operation was a success, but the
patient died. It would be amusing if it weren't so tragic to see the
maintstream media commentators doing back-to-back stories praising the
government for its neoliberal economic policies, only to switch to
heartfelt observations about how mean things are getting on Canada's
streets, how the number of homeless is burgeoning, how Vancouver has the
highest incidence of drug-related HIV infection in the developed world,
etc.
Happy Neoliberal Holidays to All, and to All a Good Night
Sid
>
> Hey all you Canadians. You're always complaining about how bad things are
> up there in the Great White North. Today's Wall Street Journal sets the
> record straight - Canada is the envy of the G-7, a true austerity success
> story!
>
> Doug
>
> ----
>
> The Wall Street Journal Interactive Edition - December 26, 1997
>
> Canada Endured Tough Choices
> To End a Damaging Recession
> By LARRY M. GREENBERG, ROGER RICKLEFS and MARK HEINZL
> Staff Reporters of THE WALL STREET JOURNAL
>
> TORONTO -- Fluke Transportation Group Ltd., a trucking
> company once owned by three brothers named Fluke, could
> always get a lift from its pithy slogan: "If it's on
> time, it's a Fluke."
> No slogan, however, could protect the Hamilton, Ontario,
> concern from Canada's devastating recession and
> austerity program of the early and mid-1990s. "I was
> really worried," says Ron Foxcroft, president and chief
> executive. "Employees came in every week saying a
> different neighbor got laid off. We had to cut costs to
> the bone."
>
> Spurred by its trials, the company refocused its
> operations and took advantage of free trade with the
> U.S. to push export business. Today, Mr. Foxcroft says,
> "we are just booming." The company, which had all of
> three trucks 15 years ago, now has 200 trucks and 500
> trailers.
>
> Like Mr. Foxcroft and his company, Canada is back. The
> nation's recession was nearly twice as severe as its
> U.S. counterpart, but by some measures, its recovery has
> been even more successful.
>
> Though the recession technically ended in early 1991,
> its effects hindered Canada for years. Corporate
> restructuring was so severe that the unemployment rate
> rose for two years after the recession was over and
> reached 11.5% in 1993. Then the country had to endure a
> brutal program of government spending cuts to curb
> soaring budget deficits. The economy had a negative
> quarter as recently as 1995.
>
> Yet Canada today is growing more rapidly than any Group
> of Seven country and has an even lower inflation rate
> than the U.S. Economists expect Canada to achieve a
> balanced budget in the current fiscal year, ending March
> 31 -- well ahead of the U.S. "We have the strongest
> economy in the G7 this year, and I think there is a good
> chance we'll have the strongest next year," says Sherry
> S. Cooper, chief economist of Nesbitt Burns Inc.,
> Toronto, the Bank of Montreal's securities arm.
>
> Some economists fear that Canada won't maintain the
> momentum, predicting the economy will slow next year
> because of Asia's financial problems, which have reduced
> the prices Canada gets for its huge exports of mining
> and forest products. Even Dr. Cooper has lowered her
> forecast for economic growth next year to 3.6% from 4%,
> and other economists are predicting growth of as low as
> 2.8%.
>
> Still, for now, signs abound that the Canadian economy
> is improving. The nation's central bank, the Bank of
> Canada, predicted in November that the economy would
> grow 4% this year. Job growth remains strong, as do
> retail sales. Meanwhile, the consumer price index has
> risen just 0.9% in a year.
>
> Sidelined for Years
>
> To get to their current state, Canadians had to struggle
> through a recession followed by an austerity program far
> tougher than anything Americans have suffered in the
> postwar era. People thrown out of work were often
> sidelined for years. Steelworker Shane Thomson lost his
> job at Dofasco Inc. in 1992 when the Hamilton steel
> producer laid off 2,000 employees. He didn't find steady
> work again until 1994. Even then, his new employer laid
> him off and rehired him twice in two years as its orders
> ebbed and flowed. "There were no luxuries, that's for
> sure," the father of three says of those lean years.
>
> Businesses also took a beating. According to industry
> figures, about 25% of Canada's manufacturers and about a
> third of its retailers closed their doors between 1989
> and 1992. A decade ago, 22 companies made carpeting in
> Canada. But between the recession and increased
> competition from the U.S., only five are left, says W.
> Leslie Single, chairman and chief executive of Crossley
> Carpet Mills Ltd., in Truro, Nova Scotia.
>
> 'You Lose Sleep'
>
> "In 1993, there was some question whether or not our
> company would survive," Mr. Single recalls. The company
> was losing money, its employment had plunged to 300 from
> 525 five years earlier, and it had to ask employees to
> swallow a 10% rollback in wages. "When you have so many
> lives depending on you, you lose sleep," Mr. Single
> adds.
>
> The government struggled in the tough years as its
> enemies lambasted the national cost-cutting program.
> Critics charged that the Liberal government and Finance
> Minister Paul Martin had betrayed the party's long
> commitment to social justice in order to impress Wall
> Street bond buyers. Many were outraged as the government
> laid off 45,000 federal employees -- 14% of the total.
> Syndicated newspaper columnist Dalton Camp wrote:
> "Ancient tribes, to please the gods, often offered human
> sacrifices; Martin, to please New York, offered 45,000
> public servants."
>
> But the government concluded that it had no choice. Soon
> after the Liberals took office in November 1993, they
> faced a record deficit, equal to 6% of gross domestic
> product, the worst showing of any G7 country except
> Italy. Total government debt nearly equaled GDP.
>
> Throughout 1994, the problem only worsened. For
> instance, the Mexican currency crisis that began in
> December 1994 slashed 36% of the peso's value in just a
> few days. When speculators targeted other weak
> currencies, the Canadian dollar dropped to a nine-year
> low of 70.1 U.S. cents. As Mr. Martin put the final
> touches on his watershed budget in early 1995, Canada
> had raised short-term interest rates more than four
> percentage points in 12 months in order to protect the
> national currency.
>
> Backed by Prime Minister Jean Chretien, Mr. Martin
> decided to do what no Canadian government had dared try
> before: cut deeply into the country's cherished social
> programs, from health care to subsidized college
> education. He decided that government spending would
> shrink 13% over three years and insisted on cutting the
> "untouchable" Old Age Security program, which guarantees
> a pension to every Canadian, a plan Mr. Chretien at
> first resisted.
>
> Last-minute bad news helped Mr. Martin sell his
> controversial program. As the finance minister was about
> to stand to address a cabinet meeting where he expected
> opposition to the proposals, he was handed a note saying
> the Bank of Canada had boosted short-term interest rates
> a full percentage point in response to the peso crisis.
>
> Opposition to the budget package immediately wilted.
> "The peso crisis created a real sense of what could
> happen if you get on the wrong end of global markets,"
> says Peter Nicholson, an economics adviser to Mr. Martin
> at the time. Before long, the government was cutting
> farm and business subsidies, raising gasoline taxes and
> making it harder for people to qualify for unemployment
> insurance.
>
> Downgraded Debt
>
> Only six weeks after Mr. Martin presented the budget in
> February 1995, Moody's downgraded Canada's triple-A debt
> rating by one notch, noting that the country's debt was
> still growing.
>
> But the budget cuts themselves gained more public
> acceptance than some people expected. Indeed,
> public-opinion polls showed that two-thirds of Canadians
> believed the government was "on the right track." And
> people were scared. "Canadians were extremely disturbed
> by the indebtedness they saw," says Catherine Swift,
> president of the Canadian Federation of Independent
> Business, which represents small companies.
>
> Some Canadians actually welcomed the cuts as long
> overdue. Alberta wheat farmer Eugene Dextrase says lower
> subsidies encouraged him to grow more value-added
> products, such as canola. "In the long run, it's been an
> advantage," he says.
>
> Nonetheless, many businesses suddenly had to cope with
> reduced subsidies and increased taxes at a time when
> rising interest rates already were pinching the economy.
> The country's growth rate declined to 2.3% in 1995 from
> 4.1% in 1994 and slid to 1.5% in 1996.
>
> But business was already discovering one way out of its
> problems: exports. Canada's free-trade agreement with
> the U.S., a forerunner of the North American Free Trade
> Agreement, started to reduce tariffs between the two
> countries in 1989. Meanwhile, the decline of the
> Canadian dollar to 70 U.S. cents from a recent peak of
> about 89 cents in 1991 has given Canadian exporters a
> big advantage. (The U.S. takes about 83% of Canada's
> exports.)
>
> Since 1989, exports have grown 90% in real terms, says
> Jayson Myers, chief economist of Canada's Alliance of
> Manufacturers & Exporters. With the domestic economy
> weak for several years, real imports rose only 70% in
> the period, yielding a trade surplus of 41 billion
> Canadian dollars (US$29 billion) last year, compared
> with C$11 billion in 1989.
>
> 'Too Much Red Tape'
>
> "What free trade did was create an awareness" of
> opportunity, says Mr. Foxcroft of Fluke Transportation,
> the Hamilton trucker. For instance, he adds, "we are 33
> miles from the American border, but we didn't handle one
> single dollar worth of exports until 1990. It was just
> too much red tape." With bureaucracy slashed by the
> free-trade agreement, exports and imports now account
> for 50% of volume at Fluke's trucking business and 90%
> at its affiliated warehouse operation, Mr. Foxcroft
> says.
>
> Many companies, especially in hard-hit industries,
> completely refocused their businesses to survive. When
> free trade started whittling away the 22% tariff that
> protected Canadian carpet makers, U.S. mills
> aggressively targeted the Canadian market, says Mr.
> Single of Crossley Carpet Mills. Crossley improved
> productivity and re-examined its whole operation.
>
> "We figured the Americans would focus on the residential
> market. So we shifted from 30% commercial and 70%
> residential to just the opposite," Mr. Single says.
> Since 1993, the company has increased its sales 75%,
> added another 100 employees and turned profitable, he
> adds.
>
> Such turnarounds helped the government solve its
> problems, too. In the year ended last March 31, the
> government reported a deficit of only C$8.9 billion, or
> about 1% of GDP. And now, the government's improved
> financial health has bolstered consumer confidence and
> helped push short-term interest rates almost five
> percentage points below their peak in March 1995.
> Economists say this particularly packed a wallop in
> Canada because mortgage rates are adjusted far more
> frequently here than in the U.S. Money not sunk into
> mortgage interest payments was suddenly freed for
> washing machines and new skis.
>
> Asian Effects
>
> Despite the current boom, many economists see problems
> ahead. Although natural resources aren't as important to
> the Canadian economy as they once were, concerns about
> lower demand in Asia for metals and forestry products
> have prompted selling of the Canadian dollar. As a
> result, the Bank of Canada has been forced to raise
> interest rates a full percentage point in the past three
> months. Some economists fear even more rate increases
> will be needed to protect the currency.
>
> The Asian turmoil also exacerbates other problems.
> Canada's exports fell 0.6% in October from the previous
> month, mainly because of lower commodity prices. At the
> same time, increased domestic demand is boosting
> imports. Jeffrey Rubin, managing director of the
> economics department at CIBC Wood Gundy Securities Inc.,
> a Canadian Imperial Bank of Commerce unit, expects
> Canada's trade surplus to decline to C$22 billion this
> year and C$20 billion next year, which would be less
> than half the 1996 figure.
>
> Moreover, household debt has soared to 97% of disposable
> personal income from 65% in 1991, Mr. Myers notes. The
> personal savings rate has plunged to less than 1% from
> 8.5% two years ago. This makes some economists think the
> consumption spree can't last. Mr. Myers predicts that
> consumer spending will grow only 1.5% next year, a sharp
> decline from 4% this year.
>
> In addition, the unemployment rate has remained at 9%
> nationally despite the economic boom. While the boom
> creates jobs, restructuring eliminates them. And total
> government debt still equals about 100% of GDP, compared
> with 64% in the U.S., the Organization for Economic
> Cooperation and Development reports.
>
> Yet many economists think the good times can keep on
> rolling. Indeed, sales by Canadian wholesalers jumped
> 13.5% in October from a year earlier, led by cars and
> household goods. Says Dr. Cooper, "There's still a lot
> of pent-up demand, and business confidence is at a
> record level."
>
>
>
