Monday, December 01, 2008

My prescription for Canada

I was asked on the London Free Press website what I though would be best for Canada. Here's my answer:

My diagnosis is somewhat controversial, but it is not really radical. The economic crises of the last half century or so have been in large part precipitated by resource limits. This is not to say that there have not been other factors, but the major crises have either been preceded by a spike in commodity prices, or are a result of natural limits placed on growth by the fact that resources are limited. The "real" (for lack of a better word) economy, that based on transforming stuff into other stuff, has real and actual limits that simply cannot be exceeded. Because growth is the single most important thing in a capitalist economy, we have invented ways to grow our economy despite natural limits: knowledge based economies, financial economies, speculative economies and deficit economies.

In the 70s, oil prices rose, precipitating a recession. In the 90s, the recession was triggered by the collapse of a virtual (pun intended) industry. The current recession has been triggered by making money off of bad debts, spiking commodity prices, and I would suggest the first tremors of the peak oil earthquake.

On the government side, traditional wisdom is that we inject public money into the private sector in order to stimulate spending. Infrastructure projects, social spending and business loans are the way we weathered recessions and depressions in the past. The odd thing with the "economic" plan is that it is an anti-stimulus package. It reduces government spending in a time when governments would traditionally be spending more. I'm not advocating for traditional plans, either, but what struck me most about the Cons "plan" is that it ignores history, and would serve to deepen the recession. It gives Naomi Klein a little additional credibility, but serves to do little else.

What government needs to do is essentially a restructuring of our economy, and thus our society. Any other plan to stimulate the economy is simply prolonging the inevitable. To use an almost cliched analogy, capitalism has been on life support since the 20s. Government spending kept capitalism alive in the 30s, helped pull it out of the depression during the war, and then helped stimulate the growth of the middle class during the second half of the century by offering tax cuts and incentives to corporations, reducing taxes on the middle class, and passing laws to guarantee livable incomes.

First, increase spending to social programs, including welfare, job training, guaranteed incomes, child care, health care, transit and infrastructure. This will not only serve to stimulate the economy, it'll ease the transition for those who are caught by the pinch. Second, pass stricter anti-monopoly laws, to prevent companies getting too big to fail. Ontario is dependent on the auto industry, and that is hardly recession-proof. If your meal ticket fails, you starve. We need to diversify. Third, take protectionist measures wherever NAFTA will allow you. Canadian industries and businesses need to get a little wiggle room. Besides, international trading that requires transport is about to get very expensive, and we'll just be preparing for the inevitable.

The feds should also look to helping new startups. Our economy will relocalize in the future as oil becomes scarcer, and we need to be ready. Furthermore, with increased labour costs, business will need a little more help. Guaranteed loans and tax holidays for small businesses would be a good idea.

This is where I'm probably going to lose you. It's counterintuitive in a traditional sense. Start a hefty carbon tax, and reduce income taxes, first by raising the allowable tax-free income, and then by lowering taxes on the middle class. Require true cost pricing, demanding that producers pay for disposal of their goods. It's essentially a subsidy to manufacturers, and it fosters our comsumerist society. Any additional income generated by the carbon tax and not lost by reducing income taxes should be used to "green" our economy, our cities and our habits. Encourage green manufacturing, our infrastructure development should be railroads, not roads.

We should also start localizing our government. A federal government is necessary, but more power should be given to provinces and municipalities, in addition to more funding. Our tax burden should shift from the feds to the cities. And municipalities need more revenue streams. Currently, all they've got (largely) is property tax and then transfers from upper governments. What should happen is that municipalities collect taxes, and transfer funds up. We should also change the way property taxes are calculated to discourage sprawl and encourage population density.

A coalition government would make electoral reform less scary. We can use this example to demonstrate that proportional representation can work, and further highlight the inadequacies of FPTP. It might also "set an example", to borrow Flaherty's phrase, showing that the government is working together to help each other out. Coalitions would give voters more confidence in their leaders. We might get more people involved, increasing the odds of getting real, inspiring, dedicated leaders.

If we make it through this recession, we'll just have time to gain a little wealth before the next one, which will be worse. The system is broken, and resuscitating it yet again only delays the inevitable. I'm not saying we need to become communists, but something in between or completely different is probably the answer. Our government has been coddling business for a century. I'm suggesting they are smarter about the businesses they coddle.

We have an opportunity to do great things. We are at risk of losing sight of the bigger picture, and recognizing the pattern. We are simply repeating the mistakes of the past, delaying the inevitable, and making the coming crash even worse, and we're fighting over whether or not the Bloc should be allowed to help form a government.

There it is. You asked for it.

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