Pierre Elliott Trudeau:
Grounds for success
Dedication to economic nationalism was right for its time, argues economist PIERRE FORTIN
By PIERRE FORTIN
Monday, October 9, 2000
Most politicians and pundits regard the economic legacy of the Trudeau era with skepticism, often with contempt. They commonly argue that the Trudeau government was responsible for the public-finance crisis that began in the late 1970s and lasted until the mid-1990s. They point out that the Trudeau cabinet indulged in outmoded economic nationalism, based primarily on anti-Americanism, the creation of new Crown corporations such as Petro Canada, and irrational anti-free-trade sentiment. And they lament that Pierre Trudeau's call for a Just Society led to an orgy of new social programs, such as the 1971 reform of Unemployment Insurance and the 1981 extension of the Guaranteed Income Supplement for the elderly, which became poverty traps instead of cures for poverty.
I am not going to argue that the Trudeau white knights were without economic fault. They had their failures. But, by and large, I think the conventional judgment I have just described is unfair and, in some respects, wrong.
Take the public-finance crisis. Fueled by large budget deficits, the federal debt had risen to 46 per cent of gross domestic product when Mr. Trudeau resigned in 1984, from just 18 per cent a decade earlier. Pretty irresponsible, right?
Well, let's see.
The decade from 1974 to 1984 witnessed a major, unexpected worldwide slowdown in economic growth, a big worldwide increase in interest rates, and the deepest recession since the Great Depression of the 1930s -- engineered by world central banks to eradicate double-digit inflation. This was an incredible string of bad luck. It simply took a long time for governments, not just the government of Canada, to understand the new economic environment and adapt to it. To some extent, the Trudeau government procrastinated, putting off fiscal consolidation; this was its failure.
But now look at the records of Ronald Reagan and Brian Mulroney. In 1980, Mr. Reagan and his supply-side gurus decided that reducing the income tax by 25 per cent would bring a new dawn to America. Taxes were cut, but during the 1980s growth did not accelerate beyond the normal pace of recovery. Most importantly, the Reagan tax move sank the U.S. federal budget into a sea of red that took George Bush and Bill Clinton 10 years to correct.
Coming just after Mr. Trudeau, Mr. Mulroney had nine years to correct the course of the federal budget. And yes, there were minor corrections. But when Jean Chrétien took over in 1993, the year's deficit stood at $35-billion and the national debt-to-GDP ratio had increased to 70 per cent -- much beyond the 46 per cent left by Mr. Trudeau in 1984.
My point is not that Mr. Trudeau did well, but that Mr. Reagan and Mr. Mulroney did no better. The Canadian and U.S. public-finance crisis of 1975 to 1995 was the outcome of bad luck and slow reaction time. To single out Pierre Trudeau is both unfair and misleading.
Second, let's look at Mr. Trudeau's so-called outmoded economic nationalism. I have no taste here for attempting to make fine distinctions between good nationalism and bad. But I am always surprised by the readiness of many Canadians to accept the constant outpouring of American nationalism as normal, and any episodic expression of Canadian nationalism as sickening. I fail to see any problem in a country's determination to cherish and develop its identity and crystallize it in distinct legal, political and economic institutions -- which can be done while still respecting the identities of others.
Now, having to cope with the xenophobia many Americans display does not give us licence to indulge in primary anti-Americanism ourselves. Maybe the Trudeau government was guilty of this kind of attitude. There is also no doubt that starting Petro Canada was a bad idea -- not because it was a nationalistic measure, but because refining and distributing oil is none of government's business.
It is also clear, but only with a lot of hindsight, that the anti-free-trade attitude of the 1970s was backward-looking. We now know that Canada's export boom of the 1990s literally saved the country from outright depression. But, back then, things were not so obvious. The Trudeau government was rightly apprehensive of what Americans would try to extract from Canada in exchange for a free-trade deal.
Besides, Canadian opinion was massively against free trade with the United States. Indeed, a majority of Canadians outside Quebec were still against the Free Trade Agreement went it went through in late 1988. In being opposed to free trade, Pierre Trudeau and his government were simply reflecting the mood of their fellow Canadians at the time.
As for the third charge levelled against Mr. Trudeau, I have strong disagreement with the argument that the Trudeau vision of a Just Society has been a failure.
The quantitative evidence is indisputable: Income inequality and poverty are both less in Canada than in the United States, and Canada's advantage in this area has increased since 1974.
Statistics Canada researchers have shown that the bottom 30 per cent of families are absolutely better off in Canada than in the United States, despite average family income being higher in the United States. And, according to the standard international definition of poverty, only 12 per cent of Canadian families were poor in 1995, compared with 20 per cent of American families. The Canadian percentage was down from 18 per cent in 1974.
In some ways, those who designed the Canadian programs went too far, as when they set forth a short minimum qualifying period and offered a generous maximum duration of payments for unemployment insurance. But, by and large, I give a good grade to the Trudeau government.
There are essential components in any effective anti-poverty policy package: a full-employment policy, a good income security policy (with few adverse work incentives), a redistributive income tax policy, a major effort in education, a fair minimum wage, and freedom to unionize. In every dimension except full employment, Canada did better under Pierre Trudeau than under his Canadian and U.S. contemporaries and successors.
But what is left of his economic legacy? The Foreign Investment Review Agency is gone, the National Energy Program is gone, Petro Canada is privatized. Despite this, I still think that the conventional negative verdict on the Trudeau economic legacy is unfounded. This prime minister was clearly a man of his time, and his policies widely reflected the views of Canadians in the 1970s. But his efforts to make Canada into something more like his vision of a Just Society was nothing less than very successful.
Now it is up to his heirs to defend what distinguishes us from Americans -- medicare, decent public education, and income protection through welfare, employment insurance and elderly benefits. We can still preserve his Just Society.
Pierre Fortin is a professor of economics at the Université du Québec à Montréal, and an associate of the Canadian Institute for Advanced Research.