Remember when the Liberals campaigned on expanding national child care, but eviscerated the welfare state instead? Oh, the 90s!
Doug Nesbitt, founding editor of rankandfile.ca, joins Team Advantage to discuss the reign of Canada’s Liberal Party through the 1990s. How did austerity and double-digit unemployment become normalized? What happened to Canada’s social programs? How did the business lobby exert such influence? How did the media manufacture a fiscal crisis?
Kate: The Liberals are always stealing clout. You know, they’re stealing the colour red, they’re stealing being friends with Fidel Castro, and now they’re stealing the mere concept of a red book. So I really think someone needs to put a fucking pin in it.
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Kate: Hello, and welcome to The Alberta Advantage. I’m your host, Kate Jacobson, and joining Team Advantage today, we have Roberta —
Kate: — Joel —
Joel: Hello hello.
Kate: — and special guest Doug Nesbitt. Doug, thank you for joining Team Advantage today.
Doug: Thank you for having me. I’m excited to do this.
Kate: So we’ve assembled Team Advantage today to talk about the total evisceration of the Canadian welfare state, the so-called end of history, the advent of neoliberal globalization and free trade, and the political party that did it all while pretending that they were truly progressive. That’s right, we’re here to talk about Jean Chrétien’s Liberal party in the 1990s and, in particular, Paul Martin’s role as finance minister. I, for one, am very excited to learn about the 1990s from people who remember it and were around at the time. So, to begin, let’s start with a bit of general political history leading up to the 1990s so that we have a general sense of where the major changes happen.
Joel: So, Liberal leader Lester B. Pearson was prime minister from 1963 to 1968, and Pierre Elliot Trudeau’s Liberals were in power in Canada from 1968 to 1979, and then once more from 1979 to 1984. (There was a brief little interruption in 1979 to 1980 when PC leader Joe Clark became prime minister under a minority government.) And so this is really what people mean when they refer to the Liberals as, quote, “Canada’s natural governing party,” unquote. They were in only briefly interrupted power for, basically, 20 solid years. Brian Mulroney’s Progressive Conservatives were in power in Canada from 1984 to 1993. One particularly notable event in Mulroney’s reign was the 1988 federal election, fought largely over the issue of the Free Trade Agreement. Mulroney was deeply unpopular at the conclusion of his term, largely as a result of the recession and bringing in the goods and services tax, the GST, in 1991. He resigned as leader of the PCs in June of 1993. Kim Campbell replaced him as leader of the PCs and became Canada’s first woman prime minister. October 1993 saw Jean Chrétien’s Liberals elected with a majority.
Kate: Leading up to 1993, a number of changes really shaped the Canadian economy through the post-war Liberal years. You know, the post-war years were very much the heyday of Keynesian economic policy; so things like full employment or somewhat generous social programs, public funding, things like this, these were all considered normal, these were status quo ideas. Hopefully, by this point it goes without saying that the way in which these were applied were very uneven across Canada and were very gendered and racialized phenomenons, but they were also ideals that governments strove towards more generally.
Roberta: Well, and I think the important part about the welfare state at that point is that it’s very much a universal system; it wasn’t about targeted programs, it was about every Canadian receiving the same benefits as every other, regardless of income. And so it was a real difference in how we understood the role of government and its social welfare policies.
Doug: The unemployment insurance program is really an amazing example of that, where — I think it was in ‘71 — Trudeau’s reforms to UI brought the eligibility up to, like, 96% of the unemployed, and even by 1990, after years of cutbacks to it, it was still an 80% eligibility. And now it’s below 40%.
Joel: Yeah, so it’s maybe worthwhile to discuss what Canadian liberalism in the ‘60s and ‘70s kind of looked like. Liberalism under Lester B. Pearson was very pragmatic and subject to pressure. What’s important to note during this period is that the NDP was a national presence; they had 21 members after the 1965 election, and that, to a certain degree, can be pointed to as one of the reasons for why Pearson was so flexible on the left flank. Pearson brought in the flag, bilingualism in his federal service, a new bank act, a new labour code, liberalisation of divorce laws, a new immigration act, doubling of external aid, abolition of capital punishment, collective bargaining for the public service, a royal commission on the status of women, Economic Council of Canada, Science Council, National Film Board, a war on poverty, social assistance reform so broad that the federal expenditures exceeded the nation’s defense bill for the first time. There was also the Canada Assistance Plan, which consolidated all federal-provincial assistance programs into one comprehensive package. In order to be eligible for matching funds, provinces would have to help people achieve and retain independence, meet financial needs regardless of cause, improve standards of public welfare, grant benefits to the working poor, and ensure national standards. Provinces could not refuse benefits on the basis of non-residency, and they could not force the recipient to accept workfare.
Roberta: And then the Canada Pension Plan was originated in the late 1960s, also, which is interesting to think about now as the Alberta government is talking about taking out the Canada Pension Plan and creating our own. But, basically, the idea of the Canada Pension Plan enshrines several key new rights: it lowered the qualifying age to 65 — we should note here that Steven Harper raised it to 67, and then Justin Trudeau lowered it back down to 65. It also added wage-related pension as a supplement to the universal pension, so you could get both, and it declared that Canadian seniors should receive a government pension adequate to maintaining a socially-acceptable standard of living rather than bare subsistence. So, therefore, there’d be an automatic increase in benefits in line with increases in the standard of living. A cost of living increase? Are you crazy? And then, finally, widowed, or those with long-term disabilities, were fully provided for under the Canada Pension Plan. And I guess I should mention also that, at the same time, because federalism was a big issue in Canada and there was a huge fight with Quebec going on, Quebec created its own pension plan at the same time and isn’t under that Canada Pension Plan.
Kate: There was also conditions for federal grants for healthcare, so provinces had to deliver non-profit, comprehensive, universally available healthcare to their residents, and benefits also had to be portable from one province to the other. In addition, there was also the National Housing Act of 1964, which provided loans to provincial housing corporations for public housing at reduced interest rates. This is in addition to, kind of, a whole suite of other things; you know, there was a Youth Allowance that extended family benefits to children up to the age of 18, the Department of Regional and Economic Expansion was attempting to address underdevelopment in poorer provinces, the Unemployment Insurance Act of 1971 extended benefits and access under the program, and it actually was, at the time, one of the most comprehensive unemployment programs in the entire world. At the time, it’s really useful to start thinking about the emergence of, basically, two major camps within the Liberal Party: you’ve got the business Liberals and you’ve got the social Liberals. Social Liberals would, say, have concerns about American control over Canadian industry; you know, some voices would have been Pearson’s caucus — people like Walter Gordon actually advocated for repatriation of the Canadian economy, saying that, you know, without control of the economy, the Canadian government couldn’t maintain a commitment to full employment, which was still seen as good at the time. Foreign investment, you know, it was so high that Canadians owned a smaller portion of their productive wealth than any other industrialized country in the world at the time, and profits from natural resources, which were usually shipped unprocessed and is certainly a familiar problem, went to, by and large, foreign investors. And Gordon, in particular — you know, Walter Gordon, this is — encountered lots of opposition in his own party as a social Liberal, and the opposition were business liberals, people who were — I don’t want to do crude populist terms and say, like, “in bed with big business,” but the thing is they were literally in bed with big business, so it’s difficult to, kind of, commit to crude terms of analysis here.
Joel: And it’s important to take a measured tone when we talk about Pearson. Chomsky famously called him a war criminal, and I think that’s worth keeping in mind, also. Pearson also ended up committing himself to continental security and bilateral defense arrangements with the US — with Kennedy in 1963 — and he intended, himself, to back the business Liberals within his cabinet.
Kate: Yeah, everything you learned in school about the Suez Canal Crisis was imperialist propaganda, so just scrub it from your brain.
Doug: One of the other things to add was: in the early 60s — I think it was under Pearson — was the Auto Pact, which was basically an arrangement between the US and Canada for the auto sector, which is of course a huge driver of the economy at the time. So it helped secure a certain percentage of production in the North American auto economy in Canada. And that was, as we’ll see, one of the big things that gets wiped out.
Joel: So that was basically the era of the 60s. Moving on to Pierre Elliot Trudeau, who won a whole handful of elections. Basically, within Trudeau’s years, we saw the National Energy Program, the Foreign Investment Review Agency, the Canada Development Corporation, Petro-Canada, and the CRTC. You also saw the Orange Paper, which was a social security overhaul which the NDP championed as the continuation of Pearson’s social reforms. It was the next step in the war on poverty — it promoted a guaranteed annual income, a federal minimum wage, guaranteed employment for all able-bodied Canadians. Let’s just take a second — to me, this blew my mind when I found this out, that they were talking about this in 1975. Obviously there’s debate about guaranteed income — and that’s for another episode — but still, they were talking about it in 1975, along with a federal minimum wage and guaranteed employment for all able-bodied Canadians. 100% employment guarantee. Phenomenal to hear about.
Roberta: And then one of my favourite things, as you know, is that, at the same time, they’re providing a steady set of tax breaks to businesses; the share of corporate taxes and national revenue declined from 17% to under 14%. And this is the period where we really start to see that shift to personal income tax rather than corporate or wealth taxes. And then, as Doug mentioned earlier, unemployment insurance really did improve during this period, but then was reduced in 1975. And Pierre Elliot Trudeau viewed the business lobby as just another special interest group; he took a bit of a different approach than Pearson had. And the business community thought Trudeau was a leftist, which I find, just, awesomely hilarious. Everybody’s a leftist, apparently, according to the business community. And so they banded together in the mid-1970s to form the lobby think tank network and media outlets that would form, really, the neoliberal turn. Post-war liberalism was under assault everywhere in the 1970s, and so the compromise and consensus in that post-war period really broke down due to a profit squeeze and a perceived, quote, “excess of democracy.” Because, you know, the excess of democracy.
Joel: Sometimes you just have too much democracy, and you gotta just clean it up a little bit.
Kate: What’s really interesting, actually, about this “excess of democracy” idea is that the 1970s are really when you start getting these massive attacks on organized labour, and also when you really get the emergence of a narrative of unions as undemocratic. So in the 70s, you know, you have this narrative of “excess of democracy,” and that includes unions exercising their right to strike and picket and withdraw their labour, and that really pivots towards the end of the 1970s, towards this idea of unions as thuggish, brutal, undemocratic, imposing their will on innocent third parties and bystanders, the consumer narrative. So I think it’s a really interesting, kind of, rhetorical turn that’s part of the attack on organized labour that’s one of the defining characteristics of this era.
Roberta: Well, and I think one of the things to emphasize is — you know, I mentioned that the business community forms this lobby and this network, and I think it’s really important to stop for a second and think about how it’s influenced the world that we live in, that the business community really sets up all of these organizations and these groups to start promoting their message in all the different venues that you might think of. So, the Fraser Institute, for example, is a perfect illustration of how this message of neoliberalism starts to get spread through terrible research methods, but, nevertheless, a continuous argument and a clear message. And then, through all the business-owned newspapers throughout the country, they’re spreading their message about this new turn in economic theory, and it just becomes an intense, overwhelming inundation of new economic theory to try and really convince Canadians that this is the way to go, that the business community is right in their “excess of democracy.”
Kate: And the Trudeau Liberals — or the senior Trudeau Liberals, rather — preferred decentralization. So between 1962 and 1978, the share of public revenues that was gathered by Ottawa dropped from 47% to 32%. So there’s really this decentralization — and, to a sense, kind of an abdication — of the responsibility of the federal government to provide certain services through the collection of these revenues. And all of this was setting the stage for another showdown between the aforementioned business Liberals and social Liberals after the 1980 election win, because after having been defeated by the Tories in 1979, the Liberals really pivoted, you know — they campaigned to the Left to pay for these expensive budget items that were in their platform, they actually announced that they would close a generous tax loophole and collect $2,000,000,000 from closing this tax loophole on the rich. And social Liberals within the party, they really got a lot of pushback internally, and this closing tax loopholes proposals also spurned a lot of opposition from this newly-formed business council on national issues. They also retreated from a lot of the reforms that characterized this early era — they brought in what was called “six and five” legislation; this created a ceiling of 6%, and then 5%, for wage and price rises. So it was basically capping public service wages, provincial transfers, and social security payments. And social Liberals, in this head-to-head between business and social Liberals, ended up in full retreat, and then the policies that the BCNI, the Business Council on National Issues, opposed were pretty much completely scrapped.
Doug: One of the amazing things about the early ‘80s is that that’s when Trudeau begins to abandon — like, up against all sorts of political and corporate opposition — abandon his national energy policy. And part of that is, kind of, throwing Petro-Canada to the wolves, and Mulroney ends up being the one who privatizes it. But that was one of the things that the business community hated about Trudeau, and why they called him a leftist, ‘cause this partial nationalization of the oil industry with Petro-Canada.
Joel: So maybe it’s worthwhile to dive into what this Business Council on National Issues is. They’ve gone through several name changes: the Business Council on National Issues was their original name, then they switched to the Canadian Council of Chief Executives, and they are now known as the Business Council of Canada. And they are literally 150 chief executive officers from the biggest and most profitable corporations in Canada. As their name implies, they’re in fact a council of CEOs. And they’re very well-represented by banks, resource companies, and US-owned firms. Their approach is basically to take a very high-level policy development approach to lobby the government and influence the highest levels of government. They tend to be very friendly and diplomatic, and leave the mud-sliding oppositional stuff to lower-brow groups such as the Canadian Federation of Independent Business or the Canadian Taxpayers’ Federation or the National Citizens’ Coalition. Their self-description tends to use “non-partisan advocacy organization” to describe themselves.
Kate: Learning about them was such an odd experience. It really reminded me of how, when I was a kid, like, learning about the Iraq War, and I was like, “Damn, it’s really fucked up that we went and invaded Iraq for oil.” And then I went to college and was like, “Well, you know, it’s a bit more complicated than that.” And then I read some more books and I was like, “Damn, it’s really fucked up that we invaded Iraq for oil.” It reminded me of that, but just with, like, rich people just run the economy and the state, I guess. It’s like, “Oh, maybe it’s a little bit more complicated.” And then you read something, and it’s like, “Oh, it’s actually not any more complicated than that.” Like, rich people and their friends in government literally just run the country. You really can’t be too crude, or overstate too much, the impact that groups like this had on the total erosion of the welfare state and the total eradication of the labour movement and the total destruction of the social fabric of our society. It’s truly, truly astonishing.
Roberta: And I was just going to say, it’s funny that you say that, because, at the time, in the mid 1990s — or early 1990s — I was, you know, a precocious, politically-engaged person, and I really did have faith in the political system in a ridiculous way that, now, I look back on as so naive and ridiculous. But I really did have faith in it. And then I learned about the Business Council on National Issues, and I really just realized how ridiculous it all is, how literal the control is from the business community. That, seriously, these 150 men — they were all men at the time, pretty much — they would come and they would meet with the prime minister and the finance minister and every other person that they could think of, and they’d basically tell them what bills to pass and what laws to put in place, and, most importantly, what taxes to cut and which social programs to cut. And it just — it blew my mind at the time, and now it seems so obvious and so — like, I see it everywhere. But at the time, it really was a political awakening for me to really see, so clearly, how much control they have over the system.
Doug: I was politicized around the WTO and, you know, the anti-globalization stuff, and they were around then, too. I remember them being, like, one of those first things you learned about at the time; that, oh yeah, there is actually a cabal of capitalists who run the economy and the state.
Roberta: That’s where our slogan, “This is what democracy looks like,” came from, is that the idea and the anti-globalization movement was that the power was being controlled from outside; it was these foreign businesses, it was multinational corporations, it was these Business Council on National Issues groups all over the world that were really degrading and eroding democracy around the planet. And so, when we would go to these summit-hopping events and when we would protest, we’d be protesting the BCNI, clearly and explicitly, and it was because of that, that they were eroding the democratic system. There was that “excess of democracy” that they were worried about — well, they did a pretty good job of eroding it away.
Kate: And, you know, by the mid-1990s, this group managed a 14-person staff in Ottawa, and one of their biggest pushes was for the 1988 Free Trade Agreement. They would later, you know, advocate really hard for deficit reduction, removing supports for the unemployed, and monitoring policies that targeted inflation.
Joel: So in the early 1980s, the Business Council persuaded the Liberal government to give priority to fighting inflation over reducing unemployment and shifted it from an activist to a more passive industrial strategy. They worked very hard to bury the National Energy policy negotiated by then-minister of energy Jean Chrétien; the deal involved deregulating on gas prices and lowering government taxes and royalties, and their stated goals included keeping unemployment assistance, quote, “at levels that will not act as a disincentive to return to work,” unquote, and non-inflationary growth must continue to be a central tenet of national economic policy. Debts and deficits leading to, quote, “tax fatigue” — oh, god — needing to be eliminated, NAFTA free trade agreements, and much more.
Roberta: Well, and the thing about reading that list of the things that they promoted is that those are all the things — like, they seem so obvious now, they’re all just exactly the things we hear all day, every day. This doesn’t seem new or revelatory in any way; I mean, every day we hear about how debt and deficit are horrible and they’re leading to tax fatigue, and we hear about unemployment assistance like CERB being a disincentive to return to work — as if anybody would choose their $2000 government cheque over working in a good job, and also the crap they would take because the system that these people have promoted really tells them that they’re pathetic and horrible for not pulling themselves up by their bootstraps. So you know, as you’re listing all these things, it’s like, “Yeah, yeah. Yeah, that’s what we live with now. That’s exactly everything.”
Joel: All this rhetoric is just as natural as the air we breathe, and it’s easy to — it’s just weird to look at a particular moment in history and be like, “Ah, that’s when they introduced all these terms into the every colloquial. That’s when all these concepts became normalized.”
Doug: The other thing about inflation that’s worth remembering is that it was the unions’ fault. They did it. Their wage demands — they were the ones causing inflation all through the ‘70s and the early ‘80s.
Roberta: Right, of course. We shouldn’t pay people more to actually survive; it’s their fault, they’re driving up the prices of goods and services.
Kate: Damn unions, wanting to get paid for the work they do.
Joel: We then get into the Mulroney years. An important factor that’s worth considering as we start to consider the 1980s in Canada is how interest rates began to be used to manage the economy. The most famous example of this is in the United States. Beginning in 1979, Paul Volcker at the US Federal Reserve raised interest rates from 10% to 17% within six months. By 1981 — remember, this is also when Reagan gets elected in 1980 — the interest rate was 19%, and it wouldn’t go back down for several years. Canadian banks followed suit and raised their own interest rates. The fixed-rate interest rate for a mortgage in Canada in late 1981, for example, was 21%. What’s it now? Like —
Roberta: Like 2%.
Joel: 2%, yeah. [laughs] So raising interest rates, basically, slows down the economy — it’s more expensive to borrow money, the demand for goods and services starts to fall. And the use of interest rates was basically used to counteract inflation.
Roberta: Well, and the theoretical part of this — if you think monetary policy-wise — is that, if you raise interest rates, it also becomes more expensive for governments to borrow money, which means increasing debts and deficits. And so it actually just circles back on itself and reinforces the policy that these neoliberals wanted to push, is that, you know, we’re going to increase these interest rates — oh, and now it’s going to cost you more money to borrow and to actually invest in the economy, and so now we’ve convinced you not to do it. So it’s more that than the personal interest rate of, you know, buying a house or something like that; it’s the more systemic issue there.
Joel: Yeah, if you’re a government and you’ve been carrying a certain debt-to-GDP ratio for several decades, and then suddenly you jack the interest rate on the debt, suddenly the kind of spending you’ve been doing versus the revenues you’ve been having are going to radically change, and it throws the whole balance off-kilter.
Kate: We’ve talked a lot about inflation throughout this episode so far, and we’re going to talk a lot more about it as kind of an underpinning to a lot of the policy that is going on at this time, so I think it’s really worth digging into, you know, what is inflation? And very simply, inflation is when the value of money relative to other goods declines. So, currently, inflation is usually around 1% or 2%. And this means that, if I was to go to the bank, take out a $100 bill, put it under my mattress, and then go out and try to buy things with it, I would be able to buy, you know, about $98 or $99 worth of items. So this means that inflation is great if you’re borrowing money, because it erodes the relative value of the amount of money that you have to pay back. This is true for individuals; it’s also true for businesses, as well as, as Roberta pointed out, governments and their debt. But on the flip side, let’s say you lend money as a business — perhaps you are some sort of bank or financial institution, for example — you probably don’t like inflation very much because it eats into your profits, and it eats into the profits you can reasonably expect to make in your returns on capital. So if you’re the owner of lots of financial wealth, as capitalists often are, inflation tends to erode the value of your wealth, to erode the value of your accumulated capital. And inflation is caused by a handful of things, but generally it’s caused by, you know, too much demand for limited goods, which can drive prices up. It can be caused by higher labour costs, especially if the labour supply is limited — this is what’s called a “tight labour market,” and this means that capitalists can sometimes end up in a bidding war against each other for labour, which, again, drives wages up. If you are a person [laughs] like all of us, who works for a living, you might be thinking, “Oh, wow, this sounds like it’s really great.” And, honestly, it is really great for workers, but capitalists, of course, complain because it eats into their profits. And another thing that can cause inflation is when, basically, a cartel sets high prices and everyone basically is forced to pay them. So, for example, if a grocery store chain had overcharged everyone in Canada for bread for years and years and years. It can also be caused by high raw material prices — so, high oil prices, for example, could cause inflation.
Joel: That initial interest rate spike caused a recession and an increase in unemployment — so, we’re talking very early ‘80s, basically. The interest rate spikes are, as we’ve said, very bad for government debt loads because they expand the interest charges dramatically, therefore justifying further cuts to program spending. Revenues have been dropping throughout the ‘70s due to tax breaks and loopholes. For the government, Stats Canada determined that 44% of debt accumulated between 1975 and 1991 could be attributed to revenue decline, and 50% of it to interest charges. So if you do the math, 50% plus 44% [laughs], that’s 94% of debt accumulated due to interest charges and tax cuts. Another part of this that’s really frustrating is that the government of Canada, in order to service its debt, would borrow from private banks at higher interest rates rather than the Bank of Canada — which they totally could have done at low interest rates — which of course made the banks very happy, but ended up basically siphoning wealth that could have been spent on programs of any sort to private banks.
Doug: So you mean to say — when we pay down the public debt, we’re giving money to private banks?
Joel: Yeah, feels great.
Joel: Cool. Another fun thing about the 1980s is that the geniuses at the Bank of Canada and the finance department were obsessed with killing inflation, so they decided to manufacture a made-in-Canada recession in 1988 with another interest rate spike; this time, not spiked by the US and their interest rates —
Roberta: We’re actually really good at made-in-Canada recessions, thinking about it now. We are skilled at that task. I’m impressed.
Joel: Yeah, I mean, we — any kind of economic planning or industrial policy, not so great, but manufacturing recessions — really good at it.
Joel: So John Crow, the Bank of Canada governor, raised the nominal bank rate of interest from 8.8% to 14%, which was more than double what the interest rate was in the US. By 1990, the inflation rate was the same — 4% — but the economy was in the throes of a full-blow recession. Unemployment rates in Canada in 1981 were 7.4%; in 1986, 10.3%; 1991, 10.2%; 1996, 10.1%. So you basically have double-digit unemployment rates for a long stretch after this interest rate spike. And also, these unemployment rates disguise a drop in labour participation, which was a drop of roughly 4% from 1989 to 1996. So 4% of Canadians that were previously working were basically giving up looking for work. And this was confirmed in a 1995 Royal Bank of Canada report named Why Canadian Living Standards Have Declined in the 1990s, which put the blame on the exceptional length and depth of Canada’s recession, which was, itself, due in large measure to the highly restrictive stance of Canadian monetary policy compounding the effects of this monetary shock for the US recession and industrial restructuring in response to globalization and free trade. So just a fun combination of fun things going on there.
Kate: Yeah, one thing I really think doesn’t get discussed enough — particularly as it impacts deindustrialization — is how unemployment rates really hide the true level of unemployment in any given society, you know? It does not include people who retire early, it does not include people who are injured at work and, therefore, out of the workforce on some kind of benefits program, it does not include people who are employed outside of their industry that they trained for, it does not include people who are underemployed in general — so, people who, you know, would like to work full-time but are only working part-time hours — and it doesn’t, as Joel just pointed, include people who have given up looking for work, who were trying to work for so long and just no longer are making that attempt anymore because it’s been years and years of looking for work. So whenever you see an unemployment statistic, you really have to consider that that is the tip of the iceberg in terms of the social crisis that it is representing, and this effect of unemployment always being lower than true unemployment is magnified by periods of deindustrialization, where all of the factors that I just mentioned are existing at tenfold, twentyfold what they normally would be.
Roberta: Well, and I think one of the other important things about unemployment insurance, or these unemployment numbers, is that, at the time, we really started to talk a lot more about people who were limited to part-time work but were looking for full-time work. It really became the conversation. And I think it’s important to point that out, because it really is about a restructuring of the economy, that in the post-war period there was a real sense that corporations, government, others, really did need to provide some benefits to their employees to ensure their employees were happy, but by the time we hit the 1990s in this economic recession that we so happily created for ourselves, the government and corporations are really at this point of minimizing the benefits that they provide to their employees. So we started to talk a lot more about people being offered just shy of full-time hours so that companies didn’t have to pay them benefits, then, also, they would not apply, or be eligible for, unemployment insurance. And we should mention, too, that we keep calling it “unemployment insurance,” and it’s now called “employment insurance,” which I think we’ll probably talk about a little bit, but some of you might be confused, why we keep saying this other thing that actually means something totally different. And so I think it’s really important that we’re seeing these shifts happen in the economy at the same time.
Doug: Just to add on to that — the concurrent attack of capital against labour is really ramping up in the ‘80s — of course in the United States, but here in Canada, too. And I’m just thinking of two industries, grocery stores and meat packing, were, in the 1980s, just annihilated by huge strikes. The unions were in lockouts, the unions were really pushed back and conceded all sorts of huge, two-tier concessions. So the beginning of that lower paid, part-time worker, and the weakening of pensions and benefits and all that sort of thing. So, yeah, massive restructuring of jobs themselves.
Roberta: Well, and then the other thing that’s happening at this time is that Canada and the United States signed a free trade agreement called the FTA in 1988. And this was a huge deal in Canada. The 1988 election was fought mostly about free trade, with Mulroney and the Progresssive Conservatives in support and Liberals, led by John Turner — who I’m sure you’ve never heard of — and the NDP, led by Ed Broadbent, opposing it. It was a complex election that really was fought in a very odd way, but really ended up with this mandate for the Conservatives to negotiate this free trade agreement. And this, again, is really changing the economic structure of Canada. The globalization that was happening at the time was really about these massive multinational corporations who were pitting countries against each other, fighting for the best system for their profit lines. And so they were pushing for lower taxes, for lower benefits, for lower environmental regulations, for all sorts of changes to patents and intellectual property, to pharmaceuticals, to all sorts of different pieces that get embedded into this free trade agreement in 1988 and really start to transform the economy in a different way so tied into the Americans and their system.
Doug: It’s worth mentioning that a majority of voters actually voted against free trade — so they voted either Liberal or NDP, who were stridently opposed to free trade in that election. And, you know, people saw the writing on the wall, they knew what was going to happen; they saw what Reaganism was by 1988, they knew what Thatcherism was, they knew increasingly about what was going on in underdeveloped and partially-developed countries where European and American capital was just pillaging these newly-decolonized territories that were now being recolonized in a new way.
Joel: What’s wild when reading about the Free Trade Agreement is that, basically, the Business Council on National Issues spearheaded the whole free trade campaign and basically drafted the policy that would end up being the agreement. So you literally have CEOs of transnational companies, many of which are US-based, coming up with the terms for a free trade agreement, and then it gets approved. Gee, I wonder who had benefited.
Kate: And the effects of the Free Trade Agreement combined with the interest rate recession are truly astonishing. By the mid-90s, proportionally 660,000 fewer people were working than before the policies were implemented. So it’s just a wholesale attack on working people.
Joel: Yeah; at the same time, because of the high interest rates in Canada but not the US, the value of the dollar went from 75 cents to 89 cents by mid-1991. Basically, you have capital shifting currency from the US to Canada to take advantage of these interest rates, which made the recession worse because, if you have any type of manufacturing, you rely on basically being able to sell your exports at a certain price. Because of these currency changes, your manufacturing is no longer profitable, and basically puts more people out of work. The results were really deeper than elsewhere in the industrialized world; there were massive business failures, a leap in unemployment, a great stress on the social security system and a collapse of government revenue, and a huge increase in the debt and deficit.
Doug: As a Ontario-based central Canadian imperialist, one of the big things here in Ontario was that early ‘90s recession. It dragged on forever, and it decimated the manufacturing sector, and that was the first real massive blow to the really strong manufacturing unions in Ontario. It wasn’t just like they were defeated in a strike or lockout; their ranks were decimated, lots of militants, lots of good union people lost their jobs.
Kate: And a lot of people lost their jobs. In 1995, the estimated real rate of un- or underemployment was 25%. So, one out of every four working-age people in Canada was either unemployed or underemployed. Like, that is a staggering level of economic crisis. There is an anecdote from one of the pieces we read when we were prepping this episode — about 25,000 people standing in line overnight for a chance to apply for a good, steady job at General Motors. Like, that is the level of economic desperation people were at.
Doug: That was, like, a common kind of story in the early and mid 90s in Ontario, is: any kind of job fair, you would literally have thousands of people lined up. There are stories about places in Belleville — where most people don’t even know Belleville exists; you know, a town of, I don’t know, 45,000 people — like, 5000 people lining up to get a job at one of the manufacturing plants. Completely mind-blowing.
Kate: And manufacturing, you know, is just being decimated. So manufacturing employment was one of the categories that had really held steady throughout the 80s, but it fell from 18% to 15% of total employment around this time. So the goods-producing sector dropped by 454,000 jobs in 1994, and manufacturing accounted for 353,000 of those job losses. So, like Doug said, 18% of the workforce of these places is just getting totally decimated; and, you know, if it’s a union shop, you’re losing 18% of the power that you have to force negotiations or to force concessions from your employer. Of course, it is worth saying that, while this is happening, there is a small net increase of jobs in the service sector; about 183,000 jobs. But if you do the math, that means service sector employment is absorbing only 40% of the jobs displaced in the goods sector.
Joel: Another interesting thing to do is look at the Business Council and their members, just to see, “Okay, well, what’s going on with these companies.” The beginning of the Free Trade Agreement, they employed 765,000 workers — the non-financial companies, that is. By 1994, the workforce of those same companies had dropped to 550,000, a destruction of 215,000 jobs. However, the combined revenues of the 50 Business Council corporations grew from 154,000,000,000 to 196,000,000,000 during this same period, so it really is a period of shedding labour costs but still maintaining very high profitability, is my read.
Roberta: Yeah, I mean, absolutely; that’s what the Free Trade Agreement did, was it moved labour out of the industrialized North so it could go to places where labour could be procured for a much lower rate. So when NAFTA is implemented in ‘94 — which we’ll talk about later — it moves a lot of jobs to Mexico because wages could be kept lower, environmental regulations were lower, all the cost lines for these big, multinational corporations could be reduced, and labour being the number-one cost for most companies, it’s the first thing they’re looking to do. So we see the shedding of jobs in the industrial North, in Canada in particular, and moving to other places in South and Central America, but also into Asia and other places. So it’s this same sort of global process that’s happening where these companies are really trying to increase their profit lines and promote this trickle-down economics theory, this idea that, you know, revenues will grow, but who cares if people are employed? It’ll eventually trickle down to them anyway. So the profit line is the more important part. And so income inequality gets really bad during this time period. We talk about it a lot now, but in 1993 alone, the wealthiest 30% got 14,000,000,000 more of the income pie than they would have received had their share remained the same that it was in 1973. So all of this extra income came at the expense of the poorest half of Canadian families. And $14,000,000,000, we should say, in 1993 equals about $22,000,000,000 now.
Joel: So with all this happening, you have an election in 1993. And leading up to the election, the Liberals campaign hard with what they call the “Liberal Red Book;” it’s basically their policy platform. Mulroney was, like, really, really unpopular towards the end of his term; approval ratings started sitting below 20%. The Liberals win, and the results are: the Liberals with a huge majority (177 seats), the Bloc Quebecois with 54 seats (they formed the official opposition), Reform (under Preston Manning) with 52 seats, the NDP has 9 seats (they lost 35), and the PCs have 2 seats (and they lost 154). So basically, this is a weird dynamic because, unlike the era of the ‘60s and ‘70s where the NDP would be sort of like this left flank pressuring the Liberals, now you basically have the Bloc, which wants to focus on the 1995 Quebec Referendum; you have Reform, which wants to do Ralph Klein austerity, but to all of Canada; and these are the two major forces that the Liberals are contending with. And they have a majority, so they can still do what they want.
Doug: I think it’s important to lay out why the Liberals had such a huge majority in relation to the parties that were up against them. The NDP story — and this is all I will say about the NDP in this episode — is that, by ‘93, the NDP governments in BC, Saskatchewan, and Ontario had all capitulated to the kind of austerity madness, the deficit reduction hysteria, and they were seriously punished at the polls for that. And the Bloc and Reform, and, like, the collapse of the PCs, that is definitely all out of the failure of the constitutional reforms that were attempted by Mulroney; like, a whole other part of the ‘80s history that I know will have to be dealt with another time.
Roberta: Well, and I think that is important to acknowledge here, also, is that this election in ‘93 is a very strange one, and it really was a watershed in lots of ways — in particular, the emergence of the Bloc and the Reform. And I’ll never forget watching election results that night — it was so similar to watching the referendum results a couple of years later — but watching these two parties building up this steam, kind of getting this split vote on the side, and it was this question all along of who was going to be the official opposition? Was it going to be the seperatist Bloc Quebecois — which seems problematic if you’re in a federal government — or was it going to be this new party, the Reform, who were really challenging the PCs from the right-wing flank? And, you know, it was such an interesting election in so many other ways, for so many other reasons. But it’s really important to note here that the Liberals didn’t have to do anything, to change anything; they really were able to campaign on whatever they wanted. The PCs were going to lose badly no matter what. And so the Liberals could’ve campaigned on anything, and so I think it’s really important to keep that in mind when we talk about what happens next.
Joel: So, what was this Liberal “Red Book?” Basically, criticize the Conservative government’s economic policy. It accused the Conservatives of having an obsession with the deficit and inflation while ignoring the cost of the cure in terms of job losses and poverty. This was what most distinguished the Tories from the balanced Liberal approach. Liberal commitment to mixed economy with an active role for government, criticizing the Tories for an over-reliance on market solutions, and they said that the solution to Canada’s economic woes was not another five years of cutbacks, job loss, and diminished expectations, but rather immediate measures to make our economy grow and create jobs. The Liberals would address the major problems facing the economy through two tracks — jobs and growth — by spending on infrastructure and housing incentives to small business and spending on training on R&D and trade promotion, and also by holding the line on spending and financing on new initiatives by re-allocating existing spending. So it’s basically: no cuts, and we’re going to refigure things internally so that we create growth and jobs. In addition to this, they also claim that they would make a monetary policy that produced lower real interest rates and would keep inflation low, and they criticized the Tories for their unilateral decisions to cut transfer payments to the provinces. That was the election platform. However, I think it’s worth talking about something that happened a couple of years before the election which really set the Liberal brain, let’s say, for the years that would follow. So, in 1991, the Liberals held what was called the Aylmer Conference (in Aylmer, Quebec). Chrétien, as leader of the LIberal Party, organized it as a kind of think tank conference — a thinkers’ conference — and it was held to create direction for the LIberal party going forward. Pearson had held a similar kind of conference in 1961 in Kingston that set out goals like universal medicare, income maintenance programs, and regional development programs. So the Aylmer Conference was called to lay out a bold new plan for Canada in the face of globalization. There were lots of business Liberals there; social Liberals were quite absent. Corporate Canada was very well-represented, as was the World Bank and the IMF. It basically was an embrace of globalization, a reappraisal of the role of the nation-state; this idea of “there is no alternative” was kind of circulated. In closing the conference, Chretien declared that the old left-right split in the party was obsolete; from now on, there was only the inevitable reality of the global economy, and Canada would have to adapt. Quote: “Globalization is not right-wing or left-wing, it is simply a fact of life.” End quote.
Kate: I am going to kill myself.
Doug: There is no alternative. [laughs]
Roberta: It’s so liberal to say that, “It’s neither left nor right, just fact.”
Joel: But it’s worthwhile thinking through the fact that, basically, they were in this pro-globalization mindset years before the election happened, right? And we have to hold the Red Book in that kind of context. After they win in December 1993, Finance Minister Paul Martin assembled Canada’s leading economists for another get-together conference kind of thing. It featured eighteen business economists, eleven academics (nine of which were neoliberals), three hybrid government policy think tank folks, six independent consulting companies (two of which were neoliberals, two Keynesians, and two kind of somewhere in between), and two political economists employed by unions. So the progressive wing of this big conference basically had, at a maximum, two union-funded political economists and two Keynsesians.
Kate: And the conclusions they came to really reflect this makeup, because they came to the conclusion that government is inherently inefficient, unproductive, and an obstruction to the creation of wealth, and that the marketplace is always preferred — of course, with big caveats here for the military, the police, the judiciary, and the penal system, which, of course, the government must control and sink loads and loads of money into. They also came to the conclusion that people have become too dependent on the government and must stand on their own, that Canadians have been living beyond their means, and that Canadians have to pay the price for living beyond their means with greater insecurity, lower living standards, weaker social supports, and high unemployment. Their ideas about globalization are that we can’t protect ourselves from the global market and that the best governments can do it to promote free trade, deregulation, and competitiveness. And they also came to the conclusion that there can be too much democracy — special interest groups have forced the government to spend beyond its means. So with that laundry list there — if you’re ever looking at the world around you in Canada and thinking, “Damn, this shit sucks,” it almost certainly has its roots in one of the ideological constructs that I just named in that list there. You know, this is the foundation of so much of what we know as the Canadian government and how it interacts with, you know, what remains of the social welfare state exist today.
Doug: Yeah, I really remember that slogan in the ‘90s, that common sense, which was: the government cannot go into deficit, it can’t spend beyond its means. A government is like a household. You would never want to go into debt. That sort of stuff.
Roberta: Absolutely, and we start to get a lot of that bootstrappery sort of rhetoric, about, “Well, just pull yourself up by your bootstraps, and you’re lazy if you can’t succeed, and it’s your own individual fault; there’s no structural problems, it’s all individualistic.” And again, like I said earlier, these are all things we hear all day, every day, constantly, and so they do now seem so natural and normal, but this was being constructed very actively and very intentionally by certain people during this time period we’re talking about. I mean, to me, this moment in time is really the real entrenchment of neoliberalism. And now we’re seeing, you know, Jason Kenney and others just come to the table and throw the book of neoliberalism right there; but these have their roots a long time ago, and this real construction of a narrative took decades for them to get to the point where we’ve now just internalized it. But this is really that moment of transition.
Joel: So this is where the Liberals are basically coming from. As far as budgets go for the next few years, the ‘93 budget wouldn’t stray too far from the Red Book — with the notable exception of unemployment insurance, which took a hit of 5,500,000,000, and provincial transfers to help with education, which were cut by 1,500,000,000. In 1994, the interest rate was higher than expected, which put pressure on the debt interest payments. Internally within the Liberal party, you had social Liberals like Lloyd Axworthy basically losing their battles. A fun fact I found doing the research for this episode is that, after the ‘94 budget, the Globe & Mail’s editorial board apparently blindsided Paul Martin — the finance minister — with really hostile questions, attacking his economic growth strategy and blaming him for not reducing the deficit faster, and chief among that editorial board attack was Andrew Coyne, then working at the Globe.
Kate: Speaking of other things we hate and that are really bad, there was a massive deficit scare that really has its origins in this time, and through the fall of 1994 — and also the first couple months of 1995 — Paul Martin and others started warning that, you know, if Canada didn’t take this hard-earned fiscal medicine, that the international financial markets and the international monetary fund would force even harder medicine upon us. So, you know, you’ve got the C. D. Howe Institute, the Fraser Institute, the Globe & Mail, really blanketing the media with this message. Preston Manning shouts that financial markets are poised to punish us unless we wipe out the deficit in three years. And this is the basic argument that, you know, foreign predators were reaching the limit of their tolerance for Canadian government debt, and that we had become so bad a risk that we were fast approaching, basically, a debt wall; and unless we got that debt under control through really deep cuts to public services, foreign lenders would pull their money out. So there is really wall-to-wall, here, a kind of manufacturing consent with this idea. The C. D. Howe Institute puts out a publication, the Fraser Institute puts out a conference called “Hitting the Wall.” Paul Martin says, “I cannot tell the Bank of Canada governor what to do re. lowering interest rates,” when he absolutely could have told him what to do. He was the finance minister of the government. This is one of my least favourite things that really cowardly government officials will do, is they’ll just be like, “Well, who am I to, you know, tell these people what to do?” Or, like, “Who am I to make these changes?” And it’s like, you are the government! You are in power; you are the finance minister of the government. You can tell loads of people what to do.
Roberta: Yeah, it’s always this, you know, pushing aside the responsibility as politicians just to put their hands up in the air and say, “Well, what could I possibly do to make change?” Well, what the hell are you doing there if not to try and make change? It just makes no sense to me. And I’m sorry, but the whole reason we have a Bank of Canada is to facilitate this interchange between government and financial institutions, to figure out what’s best for the country. And Paul Martin had the most power within that Chrétien government; you know, reading the stuff on him, it was so fascinating how much control he really had. So he definitely could have done whatever he wanted with the Bank of Canada governor.
Joel: In December of 1994, the Mexican peso collapsed, losing half its value. A side effect of this was a fall in the value of the Canadian dollar. And then the Wall Street Journal, in January of 1995, warns that Canada was on the edge of a financial abyss. Here are some great quotes. “Canada has now become an honorary member of the Third World in the unmanageability of its debt problem. If dramatic action isn’t taken in next month’s federal budget, Canada could hit the debt wall and have to call in the International Monetary Fund.” The Globe & Mail reprints the same thing from the Wall Street Journal the next day under the giant headline, “Bankrupt Canada?” And it turns out the author of the editorial had attended the Fraser Institute’s “Hitting the Debt Wall” conference. So, a fun circle of manufacturing consent there. A TD Bank chairman warned that Canada was in danger of a Mexico-like crash unless it did something about its debt. He continued to write that each man, woman, and child in Canada owed $29,000 of the public debt, which is hilarious because that’s not how public debt works. Weirdly enough, TD had also doubled its holdings of government bonds in the previous year. A banner year for bank profits. So it seems like their investment arm had great confidence in Canada while their chairman had extreme doubts. And the New York bond rating agency Moody’s, eleven days before the budget dropped, announced that it was putting the federal government’s debt on credit watch, a signal that it was about to lower the government’s coveted AAA rating. So it has a AAA rating at this point, and it’s, like, “Mm, we might have to knock it down a bit.” The same day, the finance department reported the deficit was 6,000,000,000 less than projected in the last budget, the economy was growing at 4.5% — the highest of the major G7 nations — and Moody’s did downgrade the debt after the budget, but everyone was fine with ait and didn’t make a fuss about it. So this is a phenomenal example of manufacturing a kind of crisis. An Angus Reid poll showed that, for the first time in history, the deficit was the top priority for a plurality of Canadians.
Roberta: That is shocking.
Doug: Oh, no, it is wild. This is kind of when I was coming to political consciousness in high school, and it was all-pervasive. Like, you couldn’t escape it; it was just common sense, there was no alternative. And the thing about Moody’s, though — and I remember that credit rating agency stuff that was coming out; “What are these organizations?” Oh, everyone just assumed that they were legit, but as we know from the 2008-9 crash, these are criminal organizations. They lie. Nothing they do is any kind of scientific research. They’re private entities, they have their own motives; they’re not these objective organizations that, you know, study the economy from a distance and can impart perfect information.
Roberta: Yeah, absolutely. I mean, they have their own goals to achieve in all of this, as well, which is very much built into the system. And I think that that poll that Joel mentioned is so fascinating because almost every poll that this Angus Reid poll that’s been going on for decades — of what are the top priorities for Canadian voters — almost every single time, it’s education and healthcare, always at the top of that poll. Even during crises, even during other sorts of issues. And so it’s fascinating to me that this Angus Reid poll showed that the deficit was the top priority for Canadians, when first of all, deficits don’t matter at all. Said it right here — don’t care. But, also, Canadians have a lot more issues to worry about than the deficit, even if it is a problem. They should be thinking about other things. And so it really does demonstrate that that consent thats been manufactured by the Fraser Institute, by the IMF, by the BCNI, all these groups working to build this consent and convince Canadians that they should care at all about something so stupid like the deficit.
Kate: Of course, this all comes with a hearty helping of budget cuts. Martin introduces the budget in February of 1995 with a truly staggering 40,000 jobs cut in the public service. The federal government withdraws from economic and political responsibility for spending for social programs, there are massive spending cuts. There’s also the privatization of transportation services. You add to this things like: provinces were left to go their own way on social assistance, post-secondary education, and healthcare, and the budget took $25,000,000,000 and 45,000 jobs out of the government sector over a three-year period. So that’s not only a large amount of jobs and spending being taken out of the economy all of a sudden, it’s also happening in a really, really short period of time. Federal spending was rolled back 40 years relative to the size of the economy; so this is a truly astonishing cut. Infrastructure program — cut in half. Childcare program that was promised — cancelled. The only growth in spending was interest payments on debt, which jumped by $9,000,000,000 by ‘96, ‘97. There was an expectation of high real interest rates that slowed growth, created high unemployment, and David Frum — who at this time is a future war criminal — wrote that the budget ripped the guts out of liberalism as a governing political ideal in Canada. Pretty much everything accomplished by the Liberal Party between 1968 and 1984 now stands condemned. It is a real remarkable victory for this manufacturing of a neoliberal consensus in Canada.
Joel: So, these cuts were massive, and they basically reshaped the country in a lot of important ways. It’s probably worth digging into what exactly they were. To begin, federal-provincial transfers that were introduced in the 1960s as a means of creating nationwide social citizenship rights and post-secondary education, healthcare, and social assistance, those got all downloaded into areas of provincial jurisdiction. Federal dollars, up until that point, had formed a powerful incentive for provinces to follow the federal lead. A lot of them were fund-matching programs, so the federal government would say, like, “Hey, for every dollar up to this amount that you match for post-secondary education funding, we will match it.” So it accelerates funding in these important areas.
Roberta: Well, and I think something really important to mention here is that — what Joel said about federal-provincial transfers, dealing with areas of provincial jurisdiction. Because the Canadian Constitution — I know this is going to get a little bit nerdy, but it is kind of important here — that the Canadian Constitution sets out the different responsibilities for the federal and provincial governments, and in a kind of ironic twist of fate, at the time the Constitution was written, in 1867, social programs like education and welfare and other issues were not particularly relevant or important, they weren’t being offered on any wide scale, and what was more important were things like national defense, taxation policies, infrastructure building, the national railways, other sorts of things, that those went to the federal government and the provincial governments got these other programs. But when we see the expansion of the welfare state in the post-war period, the provinces don’t have the tax base to pay for all of these programs that they’re responsible for under the Constitution. And so for the country to have a program like Medicare or unemployment insurance or a pension plan, it needs to be offered at least through funding from the federal government that’s transferred to the provinces, because the provinces just can’t afford it. And so, in this budget, when they cut these transfers, it’s a huge change to what’s happening at the provincial level where, you know, citizens are still expecting and hoping for social programs, but the federal government is really pulling out of that area of jurisdiction and leaving it just to the provinces.
Doug: Yeah, this is a huge period, as well, for many provinces, where — not just federally — but the tipping point provincially from a kind of, you know, post-war compromised, Keynsedian welfare state tips over into what we now know — the permanent austerity, the neoliberalism, all that. And all those cuts that are being downloaded from the federal government to the provinces — and then all the way down the municipalities to hospital boards, to school boards — that leads to massive neoliberal restructuring at the provincial level, huge labour battles, and, also, the introduction of entirely new forms of — well, not entirely new forms, but the substantial advance of new forms of management techniques, like management by stress, continual improvement, like, lean strategies for basically ramping up the rate of exploitation in the private sector, and also doing the equivalent speed-up of work within the public sector — what’s left of it.
Joel: For me, doing research on the cuts, it was really interesting to learn about all these funding programs and transfer schemes that had existed, but have disappeared, obviously, over the past few decades. Paul Martin basically introduced a Canada health and social transfer which combined transfers to the provinces for health, education, and social assistance into a single smaller block grant — basically, a funding cut of 40% in two years, and it shrank over those subsequent years. It also ended welfare cost-sharing altogether, which allowed Ralph Klein, for example, in Alberta, to cut off whoever he wanted and do terrible things with the program here in the province. Another thing that happened which was quite stunning was the unemployment insurance program — it was cut by $3,500,000,000 per year beginning in 1996. The proportion of unemployed people actually collecting unemployment insurance dropped from around 87% in 1990 to under 50% by mid-1995. A mere 40% of unemployed Canadian workers would be able to draw unemployment insurance after all these cuts. And making unemployment insurance very difficult to access in the middle of a giant recession is, like, evil, but also, it would generate huge surpluses for the government, because everyone’s paying into it and only 40% of people who are unemployed can actually draw those benefits if they end up unemployed. So Paul Martin used these giant surpluses in the late ‘90s and early 2000s and would put these sums into general revenues. He would basically use the money intended to help unemployed people, which workers and employers had paid into for years, and instead use that to make his budgets balance. By 2000, Paul Martin and finance had pocketed nearly $40,000,000,000 from the unemployment insurance fund.
Doug: They stole workers’ money to pay the private banks they borrowed from. I mean, that’s part of what’s going on there. And they’re coercing people back into this brutal, low-wage, increasingly part-time workforce. Like, with no benefits or backup, just being shoved right back out there.
Kate: So, I have a slightly wonkish, but really excellent, story that I would like to share about this idea of very awful economist Milton Fredman and an idea he has that gains a lot of traction within the Ministry of Finance during the time period that this episode is examining. Milton Friedman has this very controversial and definitely unproven theory called NAIRU (the Non-Accelerating Inflation Rate of Unemployment), and what it is is it’s basically the idea that you have to keep unemployment high so that inflation would remain low. And this was an idea that Ministry of Finance senior economists bought into. So, in other words, for decades of efforts by the government of Canada to create full employment — something that, once again, most Canadians who work for a living would probably support — was overturned and repealed by the objective of keeping unemployment high enough. Interest rate hikes were literally being used to create more unemployment because, if too many people were working, it might create inflation. And the root of this is a really reactionary idea that the cause of unemployment was not a lack of consumer demand or, you know, capitalists trying to squeeze their preexisting workers for even more surplus value, but rather, unmotivated workers. So it also involves attacking unemployment benefits and making it really difficult to be eligible for unemployment in order to create, basically, desperation levels that are high enough so that workers will return to the marketplace and do any and all of the truly awful work that is available to them. And this theory was so radically applied by economists from the Ministry of Finance that finance officials considered 8% unemployment the “natural rate of joblessness.” So this means that this is a time in Canadian economy that, like, when unemployment is dropping from 11% to 10%, people are starting to worry because it is approaching this 8% “natural rate of unemployment” and could lead to inflation. The goal of this government was double-digit unemployment. Like, that is absolutely bonkers. And this is all because, like, liberal economists are reading Milton Friedman, are reading the economics of one of the worst, most evil people imaginable who is responsible for so much bloodshed and coups in Latin America. All to put millions of people out of work in Canada. You know, given 1994 employment levels, 10% unemployment means 1,500,000 unemployed. On purpose! They’re doing that on purpose!
Roberta: And remember, that’s only the people still looking for work and still collecting unemployment insurance. So those numbers are way higher. And, again, on purpose. The other important part about unemployment is that is also — not only is it this issue of inflation, but neoliberals also are really conscious of driving the rate of labour down. And so, you know, they want a pool of workers who are competing with each other for the crappy jobs that were out there in these part-time, no-benefits positions; the more people out there competing for those, the better it would be for the capitalists who were constantly working to lower their labour costs through the period. So it’s all, again, part of this same thing and part of this really awful financial policy, or this economic theory, that was running rampant — and still, we’re stuck with it today.
Joel: This is also kind of nuts — this NAIRU thing is bonkers to me because to have 10% of your workforce just sitting around, not doing anything, is a bit of a waste in a purely kind of technical wonkish way. It’s just capacity that’s sitting there, that’s not doing anything. It could be working and generating revenue for the government, for example, through tax dollars and all kinds of stuff. Federal human resources department calculated that the excessive unemployment cost the country $77,000,000,000 in GDP in 1993 —
Joel: — the Canadian Centre for Policy Alternatives calculated the same loss in the same year, in 1993, to be $109,000,000,000. NAIRU cost the economy $400,000,000,000 between 1990 and 1996, which is a third of the losses of the Great Depression.
Roberta: But it’ll trickle down! It’ll trickle down! Come on, if we just wait long enough; we’re just not there yet. It’s still coming, it’s still trickling.
Joel: Yeah, and what’s super far out to me is that these wonks in the Department of Finance believed in this stuff even harder than the US did, because the US did not react in these extreme ways. But Canada did, because they were internalizing Friedman’s Kool-Aid.
Kate: So, everything that we’ve discussed so far in this episode created terrible unemployment numbers, disappearing jobs, the loss of revenues, increases of poverty, general human misery. But it also created a whole bunch of other awful things that we really only have time to glance over. These things, particularly looking in the ‘90s, are: accelerated rural depopulation, the ending of regional development programs. So this is the end of even an attempt to have a sense of even development. And Canada is one of the most unevenly developed countries in the world, largely because of how it exists as a settler colony over such a vast geographic region. It has extremely uneven development. This leads to what Murray Dobbin calls, basically, the Balkanization of Canada; so you get regions being left to fend for themselves, they have very little in terms of supports to help economic life continue in regions where they’re seeing resources, industry, or capital dry up. Fortunately, this isn’t something that worries me as an Albertan because I know that there will be another boom and that oil will last forever. Alberta and Jason Kenney now want to have a referendum on equalization, which is basically the only remaining kind of transfer program, or attempt to have even development, in Canada. So, you know, this is [laughs] a geographically huge country; it is set with extremely intense regional grievances and squabbles because there is no strong sense of shared opportunity around it. And you all know that I believe that Canada is not only fake, but it sucks ass, but there did used to be, in some sense, real, tangible benefits to being a human being that lived within Canada’s borders. Obviously, that is a phenomenon that, even at the time, most strongly — and almost exclusively — applied to settlers, but I think it’s really important to note that that doesn’t even really exist for settlers anymore. Like, absolutely there are benefits to being a settler in Canada, but the idea that there’s a strong sense of shared opportunity, an attempt at even development, real benefits to being in a country with people who live thousands of kilometers away from you, is not even really something that Canada pretends to anymore.
Doug: I remember also, in the ‘90s, that while all this was happening, the media and politicians — and, you know, every booster there is of Canada — were going on and about those UN reports about this being, like, the best place to live. And, strangely enough, we haven’t really heard about that ranking for the last fifteen years, maybe. I wonder what happened. I wonder how the country went.
Joel: Yeah, like, this stuff affects so many facets of life. Just as one example: the corporatization of post-secondary institutions happens as a result of this, right? Universities now have to look for private dollars, and so you see them appoint corporate-appointed administrators that are selected on their capacity to fundraise private dollars for the university. It has all these ripple effects that continue to ripple for decades. It’s awful.
Roberta: This was really a brutal, brutal time in Canadian history. It really was the dismantling of a long and very difficult fight for social welfare programs, for a social safety net, for a sense of responsibility for each other, that we pool our resources to share those resources. Instead, it became the corporate-led hellhole that we live in now where, you know, the whole goal is this upward mobility of profit at whatever the cost. And so my opinion is that this early 1990s Liberal shift that happens from the Red Book to the budget is really that moment when neoliberalism gets fully and officially embedded in Canadian politics and the economy. And it really has shaped who we are now. I mean, I’m sure everything we’ve talked about today sounds familiar to all of you living in this context. So, you know, it really was a fundamental transformation of the Canadian state and the Canadian economy that we’re living with the consequences of now. And who knows where that’s going?
Kate: One of the reasons that we really wanted to do this episode about the Liberals and how terrible they were in the 1990s is that, for a certain cohort — and I really include myself in here — like, I kind of remember the last years of Harper, but I have no memory of the ‘90s and of the Liberals that I think, even for people who are older than me, you know, Harper was when they really became politicized, and that is where kind of the focus goes on, so people don’t have a memory of what happened in the ‘90s and how terrible, you know, it truly was. So we’re hoping to kind of fill in the gap here and explain, you know, why we live in the current hell that we do live in. Because this period of time built the foundation for the social order that we have now. You know, maybe we give Harper too much credit; the Liberals really did the work here. You know, they did the work of campaigning to the left and then, within eighteen months, destroying 40 years of building up the Canadian welfare state. Harper just took care of this phenomenon, you know? The Liberals really got away with what the Conservatives couldn’t do in the ‘80s, with what the Conservatives would never have the social license to do. And, to me, that just sums up the Liberal party in Canada almost better than anything else, is: campaigning to the left, really taking advantage of a genuine desire, usually, to see things changed in society, and then not only perpetuating the status quo, but continually eroding it and making it worse and lowering people’s expectations of what they can expect from the society around them. And, you know, this was a pretty long episode, and we didn’t even get into so much stuff that was truly awful about the federal Liberals, you know; we didn’t touch the referendum of the ‘90s, the truly terrible foreign policy in places like Somalia; the Oka Crisis, the privatization bonanza. You know, this was a time when you could buy any Crown corp that you wanted to, you know, for pennies on the dollar. But what I really hope people take away from this episode is that there was a welfare state in Canada — it was a welfare state that was imperfect and that was uneven, but was also hard fought for and was won through struggle — and this welfare state didn’t just fade away and die, it wasn’t a natural process, this isn’t just something that happens. This welfare state was assassinated to make the Business Council happy. It was destroyed to drive your wages down, to make your boss happy. And it was destroyed to pay off the deficit to make the banks happy. These are not only bad outcomes, but these are also bad reasons to pursue politics. There are not the reasons you have when you are trying to create a socially good and socially just society. So, on behalf of everyone here at The Alberta Advantage, I hope you are just as depressed as we are after making this episode. Take care out there, stay safe, and we’ll see you next time.
Doug: I’m going to go listen to Nirvana now.
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Kate: The Alberta Advantage is part of a loose affiliation of left-wing podcasts hosted by the bilingual journalism collective Ricochet, who you can find at ricochet.media. Our podcast is primarily supported through Patreon by listeners like you. We use the money for equipment and other semi-serious pursuits and, as a thank you, we send out fun packages with grain elevator-themed stickers and weird tote bags a couple times a year. You can support us at patreon.com/albertaadvantage. Thanks so much for listening, and take care out there.
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